Our favorite charities are back in business, but this time not asking for handouts - just taking the money from us. CitiBank/CitiFinancial/CitiGroup (well, you get the idea), Bank of America, JPMorgan Chase, Goldman Sachs, Smith Barney (whatever the full name is now), and a cast of other "BANKS", reported huge profits for the 2nd quarter or 2009. That must mean that the financial crisis that threatened life on the planet is now past! Well, yes and no or maybe, but we are not at all certain yet.
It is true that there were record earnings at some of these banks and they all did great, but it is where that got there profits that is disturbing, more so than the fact that after pleading for a bailout, they are ready to give out huge bonuses again. Little of the profits came from "banking" as consumers and small to mid-size businesses understand the term. Bank of America and CitiXxx had huge one-time profits from the sale of assets and from "investment banking". Ah ha you say - "banking is how they made money"! Not so quick grasshopper.
"Investment banking" is to "banking" (as most of us understand the word) as Burger King(R) is to a cooking a barbecued hamburger in your back yard. Char-broiled but to a different scale. Buying and selling securities, selling short, trading in commodities, dealing in derivatives, buying other businesses - and selling its assets at a profit, is what investment banking is. Making loans to small and mid-size business, or to people (unclean) is what it IS NOT.
Keep in mind that Goldman Sachs was one of the top firms that put mortgage loans into packages (securitization) and sold them at huge profits. When the value of mortgage-backed securities (MBS) began to crash Goldman "sold short. They "gambled" that the price would go down FAST and that they would fill the order to sell MBSs at the lower price. They made a small fortune while the rest of us lost millions in our 401Ks, IRAs, and had all credit stopped.
So, almost none of the money received from the government and from other financial incentives given during the crisis, went to new home mortgages, was used to modify existing mortgages to stop foreclosures, was used to keep the "mom-and pop shops" in business, or was loaned to small and mid-size firms to help them through the cycle so they would not have to lay-off 50% of their staffs, creating a nearly 10% unemployment rate. The rate of job losses is slowing, but still increasing in numbers.
The promised home loan modification process is not yet functioning. Mortgage modifications are more difficult to get than they were a month ago. Businesses keep laying-off workers because they have no business because other companies have had to minimize operations and they have reduced staff which has caused more foreclosures which has killed the building trades which has caused bankruptcies which has prevented many companies from being paid which has...
There are those economists and financial types who say now - "see, the free-market system is working". They were many of the same experts who cried foul at the bailout of AIG and Bank of America and Citi. The "free-market system" needed some help because of the lack of regulation in the late '90s and through 2007 that led to the crash from which we are trying to recover.
We have reached the point that we now know you cannot put CheezeWiz(R) back into the can.
Author's Copyright by Richard I. Isacoff, Esq., July 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
Monday, July 20, 2009
Monday, April 20, 2009
Money For Foreclosure Relief: An Expensive Fiction
An Associated Press story in the New York Times on April 16, 2006 headlines "SIX LENDERS TO GET HOME LOAN AID", specifying in the body of the story that the recipients of the $9.9 billion are JPMorgan Chase, Wells Fargo & Co, GMAC Mortgage (which owns the Ditech entity), CitiMortgage, Select Portfolio Servicing, and Saxon Mortgage.
A FRONT PAGE story in the Wall Street Journal the day before read "BANKS RAMP UP FORECLOSURES". Guess who this article refers to as "ramping up": JPMorgan Chase, Wells Fargo, and FannieMae and FreddieMac. Citigroup stated that it had stopped foreclosures until March 12th at the request of the Obama administration but has gone back to business as usual. If a borrower is a "good candidate" for a modification as determined by CitiGroup, which means that it must own the loan - no securitization - it will wait and see what happens. GMAC too had stopped actions at the Administration's request, is back foreclosing. It stated that 10% of the mortgages in some state of foreclosure may be eligible for a federal program.
It seems that the government is rewarding lenders to foreclose. They are giving additional $$billions to the same companies that are not using the funds to help homeowners, but rather are using the funds to beef-up their balance sheets. It is not even being done under the guise of some Federal program like "HOPE NOW", which has had little impact on solving the problem, but at least gives the aura of respectability. One can at perhaps admire the honesty of these companies which do what they want, with seeming impunity. Select Portfolio and Saxon Mortgage are two of the most difficult entities with which to deal. Wells Fargo, while professing to be helpful is a throw-back to the old joke about banks lending you money when you don't need it - the have taken that addage to heart with mortgage bailouts.
Why is this issue being dealt with here, where the posting have tried to educate and explain? Because this is an education also. The much publicized "homeowner relief plan" was just for PR. If you have a home in danger of foreclosure, DO NOT WAIT for the government to help you. Assume that money is being spent, but more likely than not, to pay for the deficiency balance which remains after a family is evicted from their home which just went through foreclosure, fetching 60%-70% of the outstanding balance of the mortgage. We cannot have the Banks losing any more money, can we?
Your best bet is to contact an attorney who has experience in debt counseling, foreclosure prevention, and depending on your situation, bankruptcy. A competent lawyer can answer your questions about your risk of losing your home and can suggest several courses of action which might bring you a good resolution. At least, you will have someone on your side!
Author's Copyright by Richard I. Isacoff, Esq., April 2009
http://www.isacofflaw.ccom/
rii@isacofflaw.com
A FRONT PAGE story in the Wall Street Journal the day before read "BANKS RAMP UP FORECLOSURES". Guess who this article refers to as "ramping up": JPMorgan Chase, Wells Fargo, and FannieMae and FreddieMac. Citigroup stated that it had stopped foreclosures until March 12th at the request of the Obama administration but has gone back to business as usual. If a borrower is a "good candidate" for a modification as determined by CitiGroup, which means that it must own the loan - no securitization - it will wait and see what happens. GMAC too had stopped actions at the Administration's request, is back foreclosing. It stated that 10% of the mortgages in some state of foreclosure may be eligible for a federal program.
It seems that the government is rewarding lenders to foreclose. They are giving additional $$billions to the same companies that are not using the funds to help homeowners, but rather are using the funds to beef-up their balance sheets. It is not even being done under the guise of some Federal program like "HOPE NOW", which has had little impact on solving the problem, but at least gives the aura of respectability. One can at perhaps admire the honesty of these companies which do what they want, with seeming impunity. Select Portfolio and Saxon Mortgage are two of the most difficult entities with which to deal. Wells Fargo, while professing to be helpful is a throw-back to the old joke about banks lending you money when you don't need it - the have taken that addage to heart with mortgage bailouts.
Why is this issue being dealt with here, where the posting have tried to educate and explain? Because this is an education also. The much publicized "homeowner relief plan" was just for PR. If you have a home in danger of foreclosure, DO NOT WAIT for the government to help you. Assume that money is being spent, but more likely than not, to pay for the deficiency balance which remains after a family is evicted from their home which just went through foreclosure, fetching 60%-70% of the outstanding balance of the mortgage. We cannot have the Banks losing any more money, can we?
Your best bet is to contact an attorney who has experience in debt counseling, foreclosure prevention, and depending on your situation, bankruptcy. A competent lawyer can answer your questions about your risk of losing your home and can suggest several courses of action which might bring you a good resolution. At least, you will have someone on your side!
Author's Copyright by Richard I. Isacoff, Esq., April 2009
http://www.isacofflaw.ccom/
rii@isacofflaw.com
Monday, April 13, 2009
How Money is Derived from Derivatives Called "Mortgage Backeds"
The Chart above shows how Mortgage Backed Securities "MBS" come into existence.
(Chart author/designer unknown)
Terms used - (Green = $$$):
a. Originator=Lender
b. Arranger=the "putter together" of the mortgages
c. Trust=Holder of the MBS money
d. AAA-Purple=the MBS itself
e. Investors= buyers of the
MBS/I.O.U.s
f. Manager= Loan servicer
g. Houses= collateral for the MBS)
Hopefully, you have some idea of what a "Derivative" is and that a "Credit Default Swap" is really a kind of "Derivative". Further, that "Mortgage Backed Securities" are just sophisticated I.O.Us, where the "Arrangers" of the MBS say to the investors (mutual funds, banks, of just retail investors) that the "Arranger" wants to borrow money and will pledge mortgages as collateral. But, rather than pledging a mortgage at a time, the creators group thousands together and sell them as one big I.O.U. The pieces may be $1,000, $10,000 or $10,ooo,ooo (Think of a large pie sliced into some large and some tiny pieces).
Here is a restatement of the past posts about these topics:
1. Thousands of mortgages are put together.
2. The creator of this pool of mortgages offers to sell the right to receive income from the pool at a pre-determined rate of interest.
3. An investor can buy up to 100% of the pool.
4. The investor will be paid interest on the amount of the pool he/she buys
5. No one actually is buying any of the mortgages that make up the Pool, just the right to receive income from the Pool, based on the average of the interest rate for all of the mortgages in the Pool, after all costs, losses, and profits are deducted
6. The creator of the Pool/Mortgage Backed Security will sell the investor the I.O.U. based not on the actual cash received from mortgage payments, but merely on his/her/its promise to pay. (It's not like all of the money gets collected and someone divides it up into a thousand or two thousand little piles).
7. In case all else fails, IN THEORY, there is collateral for the Creator of the Pool, not the investors. The collateral is the homes that are mortgaged. The Creator of the Pool can liquidate homes that are the collateral for the mortgages that default, and use that money to pay the investors each month.
8. The Creator/Seller of the MBS, is selling the right to receive an I.O.U. which pays interest to the "Buyer" of the I.O.U. (Investor) based on the hopeful profit from the mortgage payments.
THIS NEXT PIECE IS WHERE I MIGHT LOSE YOU (if I haven't already) - IF THAT HAPPENS, READ 1-8 AGAIN PLEASE!
9. The right of the Investor to receive the money for the I.O.U. is DERIVED from the Mortgage Backed Security, which has the right to collect money DERIVED from the underlying Mortgages, which is DERIVED from the Mortgagor's (the original borrower/homeowner) I.O.U. to the Bank/Lender. All of this is based on the sale value of the real estate that has been mortgaged by the Homeowner.
If you are still confused, refer to the chart at the top of the post. If you are still confused, join the ranks of MOST lawyers, accountants, stock brokers, and most of Congress.
The next post will deal with the Administration's first step to getting some of the BAILOUT mortgage money to regular homeowner-type people.
Author's Copyright (Text Only) by Richard I. Isacoff, Esq, April, 2009
Thursday, April 2, 2009
The Real Toxic Assets - Derivatives (whatever they are)
This posting will begin a 3 part series, to be finished by week's end, where we try to make understandable the un-understandable. Obviously the topic continues to be the "Stimulus Package", TARP, TALF, and the latest entry into the lexicon of acronyms, the PPIFs. PPIF stands for "Public Private Investment Funds". These are going to be the repository of those evil and lurking "Toxic Assets".
(cartoon from The New York Times)
A short recap: - mortgages were sold that had the interest rate adjust ("ARMs"), on both prime and sub-prime borrowers, to the point that some homeowners could not pay the monthly payment. These, along with perfectly fine loans were then bundled together in $500,000,000 or larger pools, and sold to Wall Street firms which made them into saleable securities akin to a bond. They were then resold as investment quality bonds, in smaller pieces, to investors all over the Country and the world. After all, what could be safer than an investment, paying interest, that was backed by Home Mortgages. Everything was fine until the adjustments started to occur and delinquencies looked as if they would be greater than expected. The investments, Mortgage Backed Securities, "MBS", were no longer worth as much as everyone thought they were because of the fear of more defaults and foreclosures, so panic selling began, until no one would buy any of these MBSs. Because no one knew the exact value, IT WAS DECIDED, that the value would be ZERO, or something close to it and they became "Toxic Assets". (RECAP OVER)
The assets were no more toxic then than they were at the start. In reality, the true asset was the underlying collateral - home mortgages. How many would go to foreclosure and how much would be recovered was unknown, but there are a lot of percentages between 0% and 100% - none were used!! There were 2 hidden issues: 1. With the mortgages being bundled as MBSs and sold as bonds to investors (earlier posts please) no bank or lender or any one who sold them was at risk. The investors might lose some money, like they might on any corporate bond or a mutual fund, but the lenders were home free. 2. A little understood evil was waiting to steal the souls of all who succumbed to good interest rates - DERIVATIVES.
What is a "Derivative"? Simply put - a BET, a gamble that something will happen based on something else; like during the World Series, betting not on which team will win or lose but whether the score of both teams will be higher or lower than the number of strokes Tiger Woods takes in the first 3 holes of his current tournament. THIS STUFF REALLY HAPPENS!!! Here, it was a bet that mortgages would default in record numbers. It seemed like a safe bet to take, and had been for the past 50 years; mortgages had a more or less constant and predictable default/foreclosure rate.
Let's get an example that most of us understand more easily - LIFE INSURANCE. When you buy a life insurance policy, you are betting an insurance company that you will die before you have paid more in premiums than the policy will pay to your beneficiaries. The Insurance Company takes the BET, because they know that on average, very few policy holders dies before either paying in more than the death benefit, or simply let the policy lapse after many years of paying. The insurance company, having hundreds of thousands,or millions of other people buying and dying, have sophisticated mathematicians (actuaries they are called) who prepare statistics on the probability of someone dying.
For example, if you are healthy and 30 years old, and do not race cars, and want to buy a $25,000 policy, the company will say "fine" and charge you a modest monthly premium. They can do this because they have statistical proof that very few 30 year old healthy people die. If you are 70, the chances of death before paying a lot of premiums is far greater, so the payments are much higher.
REGARDLESS OF THE SITUATION, YOU ARE BETTING THE COMPANY YOU WILL DIE WHILE YOU ARE INSURED AND BEFORE YOU HAVE PAID A FORTUNE, AND THEY ARE BETTING THAT YOU WON'T. That is gambling/betting/buying chances... The company can do this because they sell hundreds of thousands of policies and the statistics prove them right enough of the time. Basically, you and hundreds of thousands of others pay premiums, and the Insurance Company pays relatively few claims. They get to keep the profit!
To be certain that the Company has guessed correctly, it will bet another and bigger insurance company to bet that the insurer might be wrong. The bigger company which has even more statistics takes the bet and collects easy money. It has bought a derivative - a bet not on the life of the insured, but a side bet on whether the first company will have to pay the claim. This second bet is DERIVED from the first bet -the insurance policy itself. It is equivalent to the bet on Tiger's golf game.
What would happen if a disease struck all of the 30-40 year olds and they died, leaving the older people only - the people who have less time to live (and pay premiums according to the math guys)? Easy - the company would not be able to pay all of the claims. The bigger company which had to pay the smaller company who issued the insurance policies might default. Both companies might go bankrupt. So, the bigger company bets with even bigger company etc. What happens is that there might be 7 bets that the 30-40 year olds will live long. If they don't, 7 companies have to pay and 7 companies might file bankruptcy.
Were any of the assumptions wrong? Yes and no. It was a first time event, all those young premium payers dying, but they did die. Would that make all policies bad no. It does point out that betting that a mortgage will go bad (OKAY CALL IT INSURING AGAINST IT GOING BAD) or any other such bet is fraught with potential disastrous problems. The biggest of these is the fact that there could be 5,6,7 or 100 bets on that 30 year old's life.
These DERIVATIVES, these side bets, are some of the main issues that "broke" A.I.G.
What happened in the financial markets that have left us with trillions in debt is next in this 3 part series.
Author's Copyright by Richard I. Isacoff, Esq., March 2009
Sunday, March 8, 2009
Mortgage Rescue Plan - What's Missing?
The last post entailed a discussion of the President's basic loan modification plan to help 1 in 9 homeowners. The plan is comprehensive and deals with loans that are owned by a bank, FannieMae (FNMA), FreddieMac (FHMC), or the Federal Housing Administration (F.H.A.). The problem arises, as often stated here, when the mortgage loan is sold into a securitization pool which strips the mortgage loan of its individuality.
It is no longer a "regular" loan; it is part of a large pool of loans, each loan providing a small part of the means to pay interest to the people who buy the pool by buying little pieces of it called bonds (fancy name is Mortgage Backed Securities), and each mortgage itself, giving the collateral to be certain the interest will be paid. After all, home loans are the safest in the world! Right?? Remember, the loan (or mortgage loan) is the I.O.U. that you give to the lender; the mortgage is you giving your house as collateral for the I.O.U.
Currently, the housing market and the loan market are in a downward spiral. Even if there is a loan modification to make a mortgage loan more affordable, by lowering the interest rate, thereby lowering the payments, if the house has decreased in value from $200,000 to $160,000, the Borrower is paying for value that has disappeared. Sure, the Borrower took the money and the evaporation of value is not the Lender's fault. However, Borrowers could probably pay the normal interest rate if the amount of the loan was reduced to the actual market value.
On the other side of the matter of fault, assume that the lender is one of the good ones and has done nothing wrong. The lender is being asked to lose $40,000 (in the example). Who would want to do that and it isn't fair. Life isn't fair. The was no contract at the time of your birth that you, or a parent-type person, signed stating that "LIFE WILL BE FAIR". Not trying to be humorous or cavalier, that is reality.
What is also reality is that a borrower who owes 20% more than a house is worth, is likely to just walk away if the borrower's financial situation gets worse. Why try to save a house that won't have equity for 10.5 years ($200,067 loan principal at 5% interest for 30 years will not pay down to $160,000, the amount of the value of the house for 10.5 years). Yes, there is no appreciation of value in the house calculated so maybe in 9 years the mortgage and house will have the same value.
Reality check: If someone is pushed to the wall because of a loss of income, or increased energy costs, or due to illness/healthcare expenses, WHY WOULD THAT PERSON KEEP A HOUSE THAT IS NOT WORTH THE MONEY HE/SHE OWES??
The current Presidential plans do not address the problem of the Loans that are part of securities ("MBS"). The difficulty is that there are dozens of contract involved in each one. NO ENTITY IN THE CHAIN OF OWNERSHIP HAS THE RIGHT TO MODIFY THE LOANS UNLESS SPECIFICALLY ALLOWED IN ALL OF THE AGREEMENTS.
The House of Representatives has passed a bill that would allow Bankruptcy Judges to modify the loans, essentially changing the contracts. These same judges do this every day on virtually every other kind of contract, including mortgages - just not mortgages on primary residences. Hopefully, the Senate will pass the same bill or once that conveys the same powers to the Courts.
There are no easy answers to the mortgage crisis, especially since it was allowed to get out of hand. Yes, there are bad borrowers who will "milk" the system. But, there are millions of borrowers who were swindled when they got their mortgages, and have been hit hard a second time with prices plummeting.
Links are provided below for further information on the Senate Bill, and the effects of the issues on several homeowners.
************************************************************
Bloomberg News Article on the Senate Bill
http://www.bloomberg.com/apps/news?pid=email_en&refer=home&sid=akFgFGFBhDp0
************************************************************
Reuter's Article on the Effects of the Bill and a Bankruptcy Judge's Opinion
Author's Copyright by Richard I. Isacoff, Esq, March 2009
Saturday, March 7, 2009
Mortgages, Mortgages, Everywhere, Yet Not A Drop For Me
We finally have the basics of the Mortgage Bailout for Homeowners -at least for some homeowners. The Administration crafted a plan, touted in the mainstream media as "Plan Could Aid 1 in 9 Homeowners". This program is designed to help people who might face foreclosure, keep their homes. This is great news! With inertia being the strongest force in the universe (at least ours), a step forward is truly a huge one. There is at least one significant gap however. BUT FIRST, the good news -PLAN BASICS:
1. Plan applies ONLY to primary residence
2. Mortgage balances cannot exceed $ 729, 750.00 - (this doesn't affect my clients)
3. You will only qualify if your total monthly mortgage payment (principal, interest, taxes, insurance) is more than 31% of your PRE-TAX monthly income. Example - you (and spouse if married) take home $750 every week, but your wages BEFORE TAXES are $900 every week, Using the BEFORE TAX figure of $900-
a. multiply it by 52 (number of pays in the year), which equals $46,800 (yearly PRE-TAX income;
b. divide that by 12 (months in the year) to get the monthly PRE-TAX income amount, here equaling $3,900;
c. multiply that figure, $3,900 by 31% (.31) = $1,209
If your total monthly mortgage payment is more than $1,209 , you would be eligible for the program. It does not matter if you are current in payments or behind, but you cannot have a large stash of cash in the bank or under the mattress.
Income WILL BE VERIFIED - Borrowers will have to sign a form allowing the Servicer/Lender to get a copy of the Borrower(s)' federal tax transcript (Form 4506-T) AND, if you are employed you will need 2 months of pay stubs; If self-employed then third-party proof of earnings in addition to the tax information. Everyone will be on the lookout for fake income figures and other FRAUD.
The concept behind this approach is to have the Lender reduce the monthly payment to an amount of not more than 38% of BEFORE TAX income, with the Treasury sharing the cost of reducing the payments to not more than 31% of BEFORE TAX monthly income.
Here is the bad news: While Borrowers with loans through FHA, VA or owned by FannieMae (FNMA) or FreddieMac (FHMC), will have no problem if the otherwise qualify (above guidelines), IF YOUR LOAN IS IN A MORTGAGE-BACKED SECURITY, and if there is a Servicer, the modification can be done only if the agreement( called the Pooling and Servicing Agreement or "PSA") among the investors, lenders, servicers, trustees, etc. allows the changes. Keep in mind, that as explained in earlier posts, no one expected this collapse, so most of the PSAs are not written to allow much in the way of modifications. Also, participation is voluntary. The majority of the Adjustable Rate Mortgages made to so-called sub-prime borrowers are in this category.
The full details of the plan, the "HOME AFFORDABLE MODIFICATION PROGRAM GUIDELINES", are available at http://www.financialstability.gov/ which is the official Treasury website. It is 19 pages, most of which gets fairly technical. At the same site there is a Summary of Guidelines called "MAKING HOME AFFORDABLE".
If you are in trouble with your loan, or soon will be, call the company that sends you the monthly statements. If they are of no help, call the "Hope Hotline" at 1-888-995-4673, or contact my office.
Author's Copyright by Richard I. Isacoff, Esq - March, 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
1. Plan applies ONLY to primary residence
2. Mortgage balances cannot exceed $ 729, 750.00 - (this doesn't affect my clients)
3. You will only qualify if your total monthly mortgage payment (principal, interest, taxes, insurance) is more than 31% of your PRE-TAX monthly income. Example - you (and spouse if married) take home $750 every week, but your wages BEFORE TAXES are $900 every week, Using the BEFORE TAX figure of $900-
a. multiply it by 52 (number of pays in the year), which equals $46,800 (yearly PRE-TAX income;
b. divide that by 12 (months in the year) to get the monthly PRE-TAX income amount, here equaling $3,900;
c. multiply that figure, $3,900 by 31% (.31) = $1,209
If your total monthly mortgage payment is more than $1,209 , you would be eligible for the program. It does not matter if you are current in payments or behind, but you cannot have a large stash of cash in the bank or under the mattress.
Income WILL BE VERIFIED - Borrowers will have to sign a form allowing the Servicer/Lender to get a copy of the Borrower(s)' federal tax transcript (Form 4506-T) AND, if you are employed you will need 2 months of pay stubs; If self-employed then third-party proof of earnings in addition to the tax information. Everyone will be on the lookout for fake income figures and other FRAUD.
The concept behind this approach is to have the Lender reduce the monthly payment to an amount of not more than 38% of BEFORE TAX income, with the Treasury sharing the cost of reducing the payments to not more than 31% of BEFORE TAX monthly income.
Here is the bad news: While Borrowers with loans through FHA, VA or owned by FannieMae (FNMA) or FreddieMac (FHMC), will have no problem if the otherwise qualify (above guidelines), IF YOUR LOAN IS IN A MORTGAGE-BACKED SECURITY, and if there is a Servicer, the modification can be done only if the agreement( called the Pooling and Servicing Agreement or "PSA") among the investors, lenders, servicers, trustees, etc. allows the changes. Keep in mind, that as explained in earlier posts, no one expected this collapse, so most of the PSAs are not written to allow much in the way of modifications. Also, participation is voluntary. The majority of the Adjustable Rate Mortgages made to so-called sub-prime borrowers are in this category.
The full details of the plan, the "HOME AFFORDABLE MODIFICATION PROGRAM GUIDELINES", are available at http://www.financialstability.gov/ which is the official Treasury website. It is 19 pages, most of which gets fairly technical. At the same site there is a Summary of Guidelines called "MAKING HOME AFFORDABLE".
If you are in trouble with your loan, or soon will be, call the company that sends you the monthly statements. If they are of no help, call the "Hope Hotline" at 1-888-995-4673, or contact my office.
Author's Copyright by Richard I. Isacoff, Esq - March, 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
Saturday, February 21, 2009
Mortgage Rescue Plan: Does It Need a Rescue?
Now we know what the monsters are under the bed: partisan politics, inertia, greed, and despair. The economy keeps getting worse and every program that is announced to help gets roundly criticized by the Press, Pundits, and Politicians. How about injecting some hope into this quagmire?
The latest rant is against the Mortgage Bailout for Homeowners. For the most part, those leading the charge seem to be talking about borrowers who KNEW that they were borrowing more than they could afford to pay back, or the borrowers who got a mortgage loan where the borrower could make minimum payments (interest only or some other lower amount) hoping/expecting the house to rise in value so the borrower could refinance again, or the borrower who lied on his/her mortgage application in order to qualify for the loan without realizing that at the very first rate adjustment, she/he would not be able to afford the payment if it went up, but prayed for a raise/new job/no rate increase/ or divine intervention (or is that intervention by the intelligent designers?).
Below is the content of an e-mail I sent to CNBC's morning business show, SquawkBox, about the call for a financial revolution against the President's plans. You can see the clip where Rick Santelli, a Trader at the Chicago Mercantile Exchange attacks the Homeowner Mortgage Bailout, by going to the web address provided: http://www.cnbc.com/id/29283701
THE E-MAIL
Dear Becky, Joe and Carl (please excuse the use of the familiar but…),
I am a private-practicing sole practitioner attorney in Western Massachusetts. My background is banking, S&L work-outs for the State of Maryland and with FSLIC, Regulator in connection with the S&Ls, and part-time lobbying in the mid-80s for the Mutual Savings Bank industry. I relocated back to Western Mass to run the Berkshire County portion of the ill-fated Bank of New England and ended up working for the Fleet/FDIC workout group, RECOLL Mgt. (Great career move – I resigned as President and CEO of a de novo FSB [federal savings bank] I had started in Ellicott City, MD.).
I take extreme exception to Mr. Santelli’s commentary, his logic, and his outlook.
I represent people, statewide, who are presently losing their homes. Not one has a Lexus or other such luxury car, and if having 1 bathroom with inside plumbing is a luxury, then I guess all of my clients have a luxury.
Just for perspective, the President’s yet fully clarified program will help my clients: the short-form facts of some are as follows:
1. Husband and wife – both working for the same molding company, both laid-off the same day. For the past 18 months, only one has been able to get a job at a time. Husband hired, wife hired, Husband laid-off. Husband gets job, wife gets laid off, etc. Mortgage with Beneficial (which is under a consent decree in Mass. for bad lending practices). Interest rate high; clients “sold” insurance (life, AD&D, disability); loan adjusts up but the disclosures show a downward adjustment by .25% each year “if for a 12 month period all payments made on time” (day due, not 15 day grace period). Repeated calls to Beneficial have yielded no help in a modification
2. Single woman in late 50s. Religious Ed teacher at Catholic High School. Loan from BankUnited, FSB in FL, through a local broker. Initial year’s payments based on 1.7% teaser rate but interest rate, not payments, adjusted month 2 to index (6 mos LIBOR) plus margin (6.75%). Payments increase by 7.5% per year. At end of first year, Orig principal of $159,000 is now $163,000. At month 43 of loan payment is $700+/-. Month 44 –payment is $1,400.30 for rest of loan. Becky will be Pope before this woman will understand the loan she was sold. Oh, by the way, the Broker lied, in writing, and is no longer in business. Closing costs/fees to Broker and Lender - 6% making it a “High Cost Loan”
3. First time home-buyer with 720 FICO. Mortgage Broker puts her in 2/28 LIBOR ARM –tells her the rate will go up and down like prime. Never tells her first adjustment will be 3%. She tries to refi and is told her income is not adequate. House is a two-family but because she rents to family member, Lender will not count the income. She has “banked” payments for the period after the second adjustment, based on the original payment. Money is available to Lender. Lender went to sell at foreclosure. I stopped it, but no response from Lender. All we asked for was original deal – as presented by broker – 30 year fixed 7% - accept monies held by me in escrow, capitalize thew arrears, if any, after recalculating the balance by applying the original rate and actual payments.
4. HFC sells 30 year fixed rate loan. Borrowers have ability to pay with acceptable ratios 32/36 DTI. Loan is billed as a “conventional 30 Year Fixed”. Loan is, in reality a “Simple Interest Loan”, so interest runs every day. There are no 15 day grace periods – pay on the 2nd of the month and get an additional day’s interest charged. Pay on the 16th, which would normally require a 3% of the payment penalty, and pay the penalty PLUS 15 days interest. RESULT: Negative Amortization – off the books – run as a ledger accrual account. $425,000 loan - $22,000 accrued, not paid, interest in 18 months. No payment ever went 30 days – all made by 15th day.
I have a dozen more like these. I have filtered out the guy who has refinanced 13 times since 1985, and now want to get out of the 14th loan – an Option Arm – he can no longer afford. This is the person Santelli should attack. This person kept “cashing out” the equity and is now in a bind due to a 25%-40% drop in prices in the Boston metro area.
One last note – why are people afraid of a judge determining if a loan was made by a lender in bad faith? Misrepresentation goes both ways, and the borrower is the weaker party. Maybe the Lenders should have watched their originators more carefully.
I watch the show every morning from 6-6:45 –get to my office at 7:05 and grab it on CNBC Plus while I go through the e-mails and loan docs. Great show, but how about some better balance. Darwin was right, but to use his theory as a life approach is ignoring basic decency. It is like the “let them eat cake” of the 18th century French elite. Santelli does not sound French.
Richard Isacoff
(end of the e-mail)
The latest rant is against the Mortgage Bailout for Homeowners. For the most part, those leading the charge seem to be talking about borrowers who KNEW that they were borrowing more than they could afford to pay back, or the borrowers who got a mortgage loan where the borrower could make minimum payments (interest only or some other lower amount) hoping/expecting the house to rise in value so the borrower could refinance again, or the borrower who lied on his/her mortgage application in order to qualify for the loan without realizing that at the very first rate adjustment, she/he would not be able to afford the payment if it went up, but prayed for a raise/new job/no rate increase/ or divine intervention (or is that intervention by the intelligent designers?).
Below is the content of an e-mail I sent to CNBC's morning business show, SquawkBox, about the call for a financial revolution against the President's plans. You can see the clip where Rick Santelli, a Trader at the Chicago Mercantile Exchange attacks the Homeowner Mortgage Bailout, by going to the web address provided: http://www.cnbc.com/id/29283701
THE E-MAIL
Dear Becky, Joe and Carl (please excuse the use of the familiar but…),
I am a private-practicing sole practitioner attorney in Western Massachusetts. My background is banking, S&L work-outs for the State of Maryland and with FSLIC, Regulator in connection with the S&Ls, and part-time lobbying in the mid-80s for the Mutual Savings Bank industry. I relocated back to Western Mass to run the Berkshire County portion of the ill-fated Bank of New England and ended up working for the Fleet/FDIC workout group, RECOLL Mgt. (Great career move – I resigned as President and CEO of a de novo FSB [federal savings bank] I had started in Ellicott City, MD.).
I take extreme exception to Mr. Santelli’s commentary, his logic, and his outlook.
I represent people, statewide, who are presently losing their homes. Not one has a Lexus or other such luxury car, and if having 1 bathroom with inside plumbing is a luxury, then I guess all of my clients have a luxury.
Just for perspective, the President’s yet fully clarified program will help my clients: the short-form facts of some are as follows:
1. Husband and wife – both working for the same molding company, both laid-off the same day. For the past 18 months, only one has been able to get a job at a time. Husband hired, wife hired, Husband laid-off. Husband gets job, wife gets laid off, etc. Mortgage with Beneficial (which is under a consent decree in Mass. for bad lending practices). Interest rate high; clients “sold” insurance (life, AD&D, disability); loan adjusts up but the disclosures show a downward adjustment by .25% each year “if for a 12 month period all payments made on time” (day due, not 15 day grace period). Repeated calls to Beneficial have yielded no help in a modification
2. Single woman in late 50s. Religious Ed teacher at Catholic High School. Loan from BankUnited, FSB in FL, through a local broker. Initial year’s payments based on 1.7% teaser rate but interest rate, not payments, adjusted month 2 to index (6 mos LIBOR) plus margin (6.75%). Payments increase by 7.5% per year. At end of first year, Orig principal of $159,000 is now $163,000. At month 43 of loan payment is $700+/-. Month 44 –payment is $1,400.30 for rest of loan. Becky will be Pope before this woman will understand the loan she was sold. Oh, by the way, the Broker lied, in writing, and is no longer in business. Closing costs/fees to Broker and Lender - 6% making it a “High Cost Loan”
3. First time home-buyer with 720 FICO. Mortgage Broker puts her in 2/28 LIBOR ARM –tells her the rate will go up and down like prime. Never tells her first adjustment will be 3%. She tries to refi and is told her income is not adequate. House is a two-family but because she rents to family member, Lender will not count the income. She has “banked” payments for the period after the second adjustment, based on the original payment. Money is available to Lender. Lender went to sell at foreclosure. I stopped it, but no response from Lender. All we asked for was original deal – as presented by broker – 30 year fixed 7% - accept monies held by me in escrow, capitalize thew arrears, if any, after recalculating the balance by applying the original rate and actual payments.
4. HFC sells 30 year fixed rate loan. Borrowers have ability to pay with acceptable ratios 32/36 DTI. Loan is billed as a “conventional 30 Year Fixed”. Loan is, in reality a “Simple Interest Loan”, so interest runs every day. There are no 15 day grace periods – pay on the 2nd of the month and get an additional day’s interest charged. Pay on the 16th, which would normally require a 3% of the payment penalty, and pay the penalty PLUS 15 days interest. RESULT: Negative Amortization – off the books – run as a ledger accrual account. $425,000 loan - $22,000 accrued, not paid, interest in 18 months. No payment ever went 30 days – all made by 15th day.
I have a dozen more like these. I have filtered out the guy who has refinanced 13 times since 1985, and now want to get out of the 14th loan – an Option Arm – he can no longer afford. This is the person Santelli should attack. This person kept “cashing out” the equity and is now in a bind due to a 25%-40% drop in prices in the Boston metro area.
One last note – why are people afraid of a judge determining if a loan was made by a lender in bad faith? Misrepresentation goes both ways, and the borrower is the weaker party. Maybe the Lenders should have watched their originators more carefully.
I watch the show every morning from 6-6:45 –get to my office at 7:05 and grab it on CNBC Plus while I go through the e-mails and loan docs. Great show, but how about some better balance. Darwin was right, but to use his theory as a life approach is ignoring basic decency. It is like the “let them eat cake” of the 18th century French elite. Santelli does not sound French.
Richard Isacoff
(end of the e-mail)
It is difficult to convey the details of the President's plan at this point, because thee are none. It is not that the program isn't outlined in detail, but the who qualifies, how does someone apply for help, how do you communicate with your lender, etc, has not been finalized. We are supposed to receive the operational details on or about March 4th. In the meantime the next post will have a summary taken from the Whitehouse Press information, stories in the Wall Street Journal and the New York Times and other publications.
Author's Copyright by Richard I. Isacoff, Esq, February 2009
e-mail: rii@isacofflaw.com
website: http://www.isacofflaw.com/
Friday, February 13, 2009
Mortgages, Foreclosures, and Other Monsters Under Your Bed
NPR had a piece on the 13th discussing the issues dealt with here in days past, namely the mortgages servicers/securitization problems. Specifically, the inability for anyone to do anything until the "government" passes a law or buys the Mortgage Backed Securities from investors at "market value" and then passes that savings to homeowners in a refinance.
The issue is that the investors, which may be individuals or mutual funds or retirement funds etc., who own the securitized loans, want the high returns they were promised; they do not want to take less, nor do they want to have the MBS sold for less than 100% of the "face value" (the outstanding balances of principal and interest of all of the loans in the MBS) of the security. Remember, as confusing as this is, that a MBS is like a corporate or municipal bond. It is merely a way for mortgage lenders to spread the risk, of loans they have made, among literally thousands of individual or corporate investors. (see 1/3/09 posting ).
Congress carefully avoided the question in the most recent stimulus package. The President is at a loss because of all of the competing interests, both in government and out. "Wall Street" wants the Government to guarantee 100% of the investment, as do all of the pension plans, mutual funds, and others who own Mortgage Backed Securities. (Ownership, as I write of it here, may mean nothing more than $1,000 of a worker's 401K, invested in the XYZ Mutual Fund that owns $5 million of MBS out of a fund of $100 million. The individual therefore owns 1/1000th of 1% of the $5 million of MBS that his/her mutual fund owns. The more staggering numbers are that the $5 million of MBS that the worker's mutual fund [the ENTIRE FUND, not just that worker's share] owns is only 1% of the entire Mortgage Backed Security which was worth $500 million when it started.) So, some "shares" or ownership rights are as small as 1/100th of 1/1000th of 1%
The others who have a stake in the outcome are the brokers who buy and sell the MBS as securities, the companies who service the loans in the MBS, the Banks who act as Trustees for the MBS, and the HOMEOWNERS / BORROWERS who are being foreclosed, and the lobbyists for all of the aforementioned.
Right now, nearly all of the Lenders have put a hold on foreclosures - some under March 6th (JP MorganChase, Morgan Stanley, Bank of America), some until the 12th (CitiGroup) and others, voluntarily, maybe, as requested by John Reich, who is the out-going Director of the Office of Thrift Supervision (Federal Savings Banks "FSBs", state-chartered Savings Banks with FDIC Insurance, Savings and Loans "S&Ls" etc) in a memo to all regulated thrift institutions on Feb 12th.
Mr. Reich summed up what we the issue with which we have to contend. Everyone is hoping that the President's team will have a plan - within weeks. The problem took years to get where it is and our new administration is supposed to have the quick fix ready by March 6th?. Perhaps the banks and Thrifts that have made loans and still own them can work with a simple payment reduction formula. They still own and control the loan so it is a case by case decision made by the LENDER.
Congress has not been able to agree on much of anything - they are now going to try to tackle the Wall Street conundrum of Mortgage-Backed Securities and all of the voices that will be shouting, "Let someone else take the loss - we just made the investment and we WILL NOT ALLOW any reduction in our return on our investments. By the way, everyone who has his/her retirement money in mutual funds that own the MBSs will say the same thing. Someone has to accept a loss or the federal government will spread the loss to all of the taxpayers in the country.
What's fair? Nothing, but we have to do something.
Author's Copyright by Richard I. Isacoff, Esq, February, 2009
rii@isacofflaw.com
http://www.isacofflaw.com/
The issue is that the investors, which may be individuals or mutual funds or retirement funds etc., who own the securitized loans, want the high returns they were promised; they do not want to take less, nor do they want to have the MBS sold for less than 100% of the "face value" (the outstanding balances of principal and interest of all of the loans in the MBS) of the security. Remember, as confusing as this is, that a MBS is like a corporate or municipal bond. It is merely a way for mortgage lenders to spread the risk, of loans they have made, among literally thousands of individual or corporate investors. (see 1/3/09 posting ).
Congress carefully avoided the question in the most recent stimulus package. The President is at a loss because of all of the competing interests, both in government and out. "Wall Street" wants the Government to guarantee 100% of the investment, as do all of the pension plans, mutual funds, and others who own Mortgage Backed Securities. (Ownership, as I write of it here, may mean nothing more than $1,000 of a worker's 401K, invested in the XYZ Mutual Fund that owns $5 million of MBS out of a fund of $100 million. The individual therefore owns 1/1000th of 1% of the $5 million of MBS that his/her mutual fund owns. The more staggering numbers are that the $5 million of MBS that the worker's mutual fund [the ENTIRE FUND, not just that worker's share] owns is only 1% of the entire Mortgage Backed Security which was worth $500 million when it started.) So, some "shares" or ownership rights are as small as 1/100th of 1/1000th of 1%
The others who have a stake in the outcome are the brokers who buy and sell the MBS as securities, the companies who service the loans in the MBS, the Banks who act as Trustees for the MBS, and the HOMEOWNERS / BORROWERS who are being foreclosed, and the lobbyists for all of the aforementioned.
Right now, nearly all of the Lenders have put a hold on foreclosures - some under March 6th (JP MorganChase, Morgan Stanley, Bank of America), some until the 12th (CitiGroup) and others, voluntarily, maybe, as requested by John Reich, who is the out-going Director of the Office of Thrift Supervision (Federal Savings Banks "FSBs", state-chartered Savings Banks with FDIC Insurance, Savings and Loans "S&Ls" etc) in a memo to all regulated thrift institutions on Feb 12th.
Mr. Reich summed up what we the issue with which we have to contend. Everyone is hoping that the President's team will have a plan - within weeks. The problem took years to get where it is and our new administration is supposed to have the quick fix ready by March 6th?. Perhaps the banks and Thrifts that have made loans and still own them can work with a simple payment reduction formula. They still own and control the loan so it is a case by case decision made by the LENDER.
Congress has not been able to agree on much of anything - they are now going to try to tackle the Wall Street conundrum of Mortgage-Backed Securities and all of the voices that will be shouting, "Let someone else take the loss - we just made the investment and we WILL NOT ALLOW any reduction in our return on our investments. By the way, everyone who has his/her retirement money in mutual funds that own the MBSs will say the same thing. Someone has to accept a loss or the federal government will spread the loss to all of the taxpayers in the country.
What's fair? Nothing, but we have to do something.
Author's Copyright by Richard I. Isacoff, Esq, February, 2009
rii@isacofflaw.com
http://www.isacofflaw.com/
Thursday, February 12, 2009
Mortgages, Foreclosures, and Help for Homeowners
According to RealtyTrac, a company that watches foreclosures nation-wide, the rate of foreclosure increases has dropped. While there was only an 18% increase in foreclosures during January of this year as compared to January 2008, that is still a hefty increase. Put in perspective though, they also report that 1 in every 466 US homes is in foreclosure. Startling? Sure, but that is only two-tenths of one percent or .2%. Is this high - yes but, we have not gone beyond the point of no return.
Perhaps this view will be against the trend, but I believe that there will be another spike in foreclosures in March. Homeowners have had the "luxury" of moratoriums on new foreclosures is a loan is with FannieMae or FreddieMac; that ended on January 31st. Additionally, many states had stopped all actions against homeowners to give everyone time to figure out what to do. NO ONE DID!
The new "Stimulus" bill, passed last night will help the economy in general, and therefore ultimately help homeowners, especially those who are currently out of work. BUT, the trickle-down effect will take time and 1000s of homes will be lost in the interim. The basic question remains: How do we (the government) stop foreclosures, or a least give the average homeowner a fighting chance?
The problem traces right back to Wall Street when mortgages were securitized, when no one had any risk except investors in the financial markets. The worst part of the securitization, after taking into account that the elimination of risk allowed dreadful loans, is that no one entity has any authority to allow real modifications on the mortgages that are in these bundles packages called "Mortgage-Backed Securities"(please refer to prior posts, specifically December 22 and January 3.) The people borrowers deal with when they call for help is the Servicer. They just collect checks, send bills, make sure taxes are paid etc. They do all of the administrative work but HAVE NO AUTHORITY to change terms of the loan.
Many of the attorneys who represent Mortgagees(Lenders) against Mortgagors (Homeowners) have stated that they would and will recommend a modification in line with my suggestions but their client, the SERVICER, does not have the right to change the terms enough to matter. The agreements among the Servicers, Trustees (the banks who manage the MBS and "hold" the assets for the benefit of the investors), Financiers (the companies/banks/lenders that puts the package of loans together for sale) specifically prohibit a change in the rate, principal amount etc.
Congress must provide Mortgage Servicers with some type of guaranty that they will not be sued if they modify loans. Congress can reform the Bankruptcy Laws and give Judges the right to determine if a mortgage should be modified; they can pass a law that indemnifies Servicers for Modifications assuming the modification is based on a full evaluation of the Borrower's circumstances; or what ever other solutions the Treasury, the Federal Reserve, Congress, or Wall Street determines will allow Servicers to make the changes necessary to stop foreclosures that are being forced by adjustments up in rates and down in housing values.
At least we are moving forward. Congress has taken the first step; the second one better come quickly.
Author's Copyright by Richard I. Isacoff, Esq, February 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
Perhaps this view will be against the trend, but I believe that there will be another spike in foreclosures in March. Homeowners have had the "luxury" of moratoriums on new foreclosures is a loan is with FannieMae or FreddieMac; that ended on January 31st. Additionally, many states had stopped all actions against homeowners to give everyone time to figure out what to do. NO ONE DID!
The new "Stimulus" bill, passed last night will help the economy in general, and therefore ultimately help homeowners, especially those who are currently out of work. BUT, the trickle-down effect will take time and 1000s of homes will be lost in the interim. The basic question remains: How do we (the government) stop foreclosures, or a least give the average homeowner a fighting chance?
The problem traces right back to Wall Street when mortgages were securitized, when no one had any risk except investors in the financial markets. The worst part of the securitization, after taking into account that the elimination of risk allowed dreadful loans, is that no one entity has any authority to allow real modifications on the mortgages that are in these bundles packages called "Mortgage-Backed Securities"(please refer to prior posts, specifically December 22 and January 3.) The people borrowers deal with when they call for help is the Servicer. They just collect checks, send bills, make sure taxes are paid etc. They do all of the administrative work but HAVE NO AUTHORITY to change terms of the loan.
Many of the attorneys who represent Mortgagees(Lenders) against Mortgagors (Homeowners) have stated that they would and will recommend a modification in line with my suggestions but their client, the SERVICER, does not have the right to change the terms enough to matter. The agreements among the Servicers, Trustees (the banks who manage the MBS and "hold" the assets for the benefit of the investors), Financiers (the companies/banks/lenders that puts the package of loans together for sale) specifically prohibit a change in the rate, principal amount etc.
Congress must provide Mortgage Servicers with some type of guaranty that they will not be sued if they modify loans. Congress can reform the Bankruptcy Laws and give Judges the right to determine if a mortgage should be modified; they can pass a law that indemnifies Servicers for Modifications assuming the modification is based on a full evaluation of the Borrower's circumstances; or what ever other solutions the Treasury, the Federal Reserve, Congress, or Wall Street determines will allow Servicers to make the changes necessary to stop foreclosures that are being forced by adjustments up in rates and down in housing values.
At least we are moving forward. Congress has taken the first step; the second one better come quickly.
Author's Copyright by Richard I. Isacoff, Esq, February 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
Saturday, February 7, 2009
The Bill is Passed - No Relief for Homeowners
The Senate passed their version of the stimulus package which now has to be reconciled with the House's stab at it. All this means is that now the 2 branches of Congress have to see if they can agree on a compromise to each other's ideas on how to put money into the economy.
Startling... or maybe not... is the fact that there is no direct relief for homeowners facing foreclosure. Congress has not approved a change in the Bankruptcy law that would allow the Court to modify residential first mortgages. Further, they have not set up any new mechanism to help homeowners at risk of losing their homes due to adjustments in interest rates, or due to loss of jobs (3.6 million in 14 months), or for any other related catastrophic economic problem now facing a family in a house with a big "FORECLOSURE SALE" sign in the front (or back) yard.
John Olver, the Congressman for this District, a man who I admire and who has worked hard for his constituents, has said nothing. His office, specifically his Legislative Assistant responsible for the finance and banking portion of the Congressman's long list of pending issues, has not returned calls. There has not been a single press release dealing with what is being done to keep people in their homes, and to stop the slide of the economy caused by the acceleration of foreclosures and the resulting loss of value of other homes in the area. This also affects the value of the "Toxic Assets" called Mortgage-Backed Securities.
Until Congress addresses the housing issue in a meaningful way, and until the affect on the financial markets allows stability, we will be in this downward cycle that keeps gaining speed. in reality, Congress is faced with dealing with the symptoms, not the cause. Perhaps they believe that the bleeding must stop before the patient dies, and then they can treat the cause. Based on history, even if the hemorrhage abates, and the bleeding of the economy seems to get better, the cause is so severe (bad loans, lax regulations, fraud etc), that the patient (our economy) will die of complications: foreclosures; banks getting more and more property that no one can buy; no loans except to credit-perfect borrowers; and banks hoarding the cash they got from the government to make loans rather than lending money to help real people.
THERE ARE NO EASY ANSWERS. The only thing we do know is that normally you look for the cause of a problem and fix it/them one at a time. Here, home mortgage lending was the primary reason the markets crumbled and lending became a thing of fairy tales and nothing is being done to fix it.
One last illustration: HOPE NOW, a federally funded program to assist homeowners to save heir homes, which anticipated helping 400,000 foreclosure risks, has has TOTAL APPLICATIONS of 451 and has finished 25 loans. THE PROGRAM IS A FAILURE. What is being done to fix it?- Nothing!
Author's Copyright by Richard I. Isacoff, Esq February 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
Startling... or maybe not... is the fact that there is no direct relief for homeowners facing foreclosure. Congress has not approved a change in the Bankruptcy law that would allow the Court to modify residential first mortgages. Further, they have not set up any new mechanism to help homeowners at risk of losing their homes due to adjustments in interest rates, or due to loss of jobs (3.6 million in 14 months), or for any other related catastrophic economic problem now facing a family in a house with a big "FORECLOSURE SALE" sign in the front (or back) yard.
John Olver, the Congressman for this District, a man who I admire and who has worked hard for his constituents, has said nothing. His office, specifically his Legislative Assistant responsible for the finance and banking portion of the Congressman's long list of pending issues, has not returned calls. There has not been a single press release dealing with what is being done to keep people in their homes, and to stop the slide of the economy caused by the acceleration of foreclosures and the resulting loss of value of other homes in the area. This also affects the value of the "Toxic Assets" called Mortgage-Backed Securities.
Until Congress addresses the housing issue in a meaningful way, and until the affect on the financial markets allows stability, we will be in this downward cycle that keeps gaining speed. in reality, Congress is faced with dealing with the symptoms, not the cause. Perhaps they believe that the bleeding must stop before the patient dies, and then they can treat the cause. Based on history, even if the hemorrhage abates, and the bleeding of the economy seems to get better, the cause is so severe (bad loans, lax regulations, fraud etc), that the patient (our economy) will die of complications: foreclosures; banks getting more and more property that no one can buy; no loans except to credit-perfect borrowers; and banks hoarding the cash they got from the government to make loans rather than lending money to help real people.
THERE ARE NO EASY ANSWERS. The only thing we do know is that normally you look for the cause of a problem and fix it/them one at a time. Here, home mortgage lending was the primary reason the markets crumbled and lending became a thing of fairy tales and nothing is being done to fix it.
One last illustration: HOPE NOW, a federally funded program to assist homeowners to save heir homes, which anticipated helping 400,000 foreclosure risks, has has TOTAL APPLICATIONS of 451 and has finished 25 loans. THE PROGRAM IS A FAILURE. What is being done to fix it?- Nothing!
Author's Copyright by Richard I. Isacoff, Esq February 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
Thursday, January 8, 2009
CitiBank and Mortgage Modifications
MORTGAGE - MODIFICATION - FORECLOSURE - BAILOUT - TARP
In a stunning and surprising turn-around, CitiBank has agreed to support Sen. Richard Durbin's bill to permit Bankruptcy Court judges to modify mortgages (see the most recent posting - January 3, 2009).The term being used is "Cram-Down", which has a technical meaning and a common sense one.
First, common sense: the Bankruptcy Court Judges will have the right to push mortgage changes down to the owner(s) of the mortgage, regardless of how many layers separate the Borrower/Debtor and the original Lender. The Legal usage is normally restricted to a Bankruptcy context. The theory allows a Debtor to ask a judge to permit the Debtor to alter the terms of a loan. The most common application has been automobiles, boats, etc, and second-homes. By statute Congress prohibited Bankruptcy Court judges from cramming-down mortgages on a debtors primary residence.
The modifications can be a nominal as allowing a small change in the interest rate, to reducing the PRINCIPAL OF THE LOAN, the AMOUNT OWED. Normally, if there is a reduction, it is to a level that is equal to the current value of the house, if it has lost all equity, or to a level that is fair based on the transaction itself. This cram-down based strictly on fairness is reserved for cases when there has been bad faith and bad conduct on the part of the Lender; in fact what is called egregious behavior.
Giving the Judges the right to modify loan terms would eliminate the risk, to a Loan Servicer or Trustee of a Mortgage Backed Security, of being sued by investors or other parties who bought a slice of every mortgage in a pool of loans. Further, it would encourage Lenders/Servicers/Investors to modify loans BEFORE there ever was a Bankruptcy. Almost every one of the Chapter 13 Bankruptcy filings I do is to protect a primary home. In the past 6 months, not one has come across my desk where the issue was not some how involved in a Lender refusing to modify the loan. While there has been no cram-down, a Chapter 13 allows up to 60 months for a Debtor to repay the amount he/she has fallen behind.
All to often, I am seeing loans that should not have been written the way they were. Adjustable Rates that has huge changes after 24 months; rates based on obscure formulas; and loans where the borrower pays less than the true interest that accumulates each month so that the Borrower actually owes more each month than what was owed the prior month (negative amortization).
The other major problem is the CRASH of housing prices. While not that critical in this Western part of Massachusetts, there are areas of the state where the value of a house has plummeted 30% or more in 12 months, and other parts of the country have faired worse.
Modifying loans to make them affordable and more in keeping with the value of a house so that the owner has a vested interest in struggling to keep his/her/their home makes all of the sense in the world. This can be accomplished by lowering the interest rate, extending the term of the loan, or REDUCING THE AMOUNT OWED. The last option must only be done with care, and on a case by case basis. The Bankruptcy Courts are equipped to do this, and have been doing it to all other types of loans right along.
As there will be daily developments in this key area for the time being, there will be daily postings to this Blog as well. As always, if you have a question about this or a related topic, e-mail or call me. Just follow the link at the end of the posting.
Author's Copyright by Richard I. Isacoff, Esq., January 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
In a stunning and surprising turn-around, CitiBank has agreed to support Sen. Richard Durbin's bill to permit Bankruptcy Court judges to modify mortgages (see the most recent posting - January 3, 2009).The term being used is "Cram-Down", which has a technical meaning and a common sense one.
First, common sense: the Bankruptcy Court Judges will have the right to push mortgage changes down to the owner(s) of the mortgage, regardless of how many layers separate the Borrower/Debtor and the original Lender. The Legal usage is normally restricted to a Bankruptcy context. The theory allows a Debtor to ask a judge to permit the Debtor to alter the terms of a loan. The most common application has been automobiles, boats, etc, and second-homes. By statute Congress prohibited Bankruptcy Court judges from cramming-down mortgages on a debtors primary residence.
The modifications can be a nominal as allowing a small change in the interest rate, to reducing the PRINCIPAL OF THE LOAN, the AMOUNT OWED. Normally, if there is a reduction, it is to a level that is equal to the current value of the house, if it has lost all equity, or to a level that is fair based on the transaction itself. This cram-down based strictly on fairness is reserved for cases when there has been bad faith and bad conduct on the part of the Lender; in fact what is called egregious behavior.
Giving the Judges the right to modify loan terms would eliminate the risk, to a Loan Servicer or Trustee of a Mortgage Backed Security, of being sued by investors or other parties who bought a slice of every mortgage in a pool of loans. Further, it would encourage Lenders/Servicers/Investors to modify loans BEFORE there ever was a Bankruptcy. Almost every one of the Chapter 13 Bankruptcy filings I do is to protect a primary home. In the past 6 months, not one has come across my desk where the issue was not some how involved in a Lender refusing to modify the loan. While there has been no cram-down, a Chapter 13 allows up to 60 months for a Debtor to repay the amount he/she has fallen behind.
All to often, I am seeing loans that should not have been written the way they were. Adjustable Rates that has huge changes after 24 months; rates based on obscure formulas; and loans where the borrower pays less than the true interest that accumulates each month so that the Borrower actually owes more each month than what was owed the prior month (negative amortization).
The other major problem is the CRASH of housing prices. While not that critical in this Western part of Massachusetts, there are areas of the state where the value of a house has plummeted 30% or more in 12 months, and other parts of the country have faired worse.
Modifying loans to make them affordable and more in keeping with the value of a house so that the owner has a vested interest in struggling to keep his/her/their home makes all of the sense in the world. This can be accomplished by lowering the interest rate, extending the term of the loan, or REDUCING THE AMOUNT OWED. The last option must only be done with care, and on a case by case basis. The Bankruptcy Courts are equipped to do this, and have been doing it to all other types of loans right along.
As there will be daily developments in this key area for the time being, there will be daily postings to this Blog as well. As always, if you have a question about this or a related topic, e-mail or call me. Just follow the link at the end of the posting.
Author's Copyright by Richard I. Isacoff, Esq., January 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
Saturday, January 3, 2009
More About Foreclosures & Mortgage Modifications
FORECLOSURE - MORTGAGE - BAILOUT - TROUBLED LOANS - FORECLOSURE SALE
2009 - a New Year! A better year for homeowners and mortgage owners? NO!, unless there are significant reforms made quickly. While I have explained the issue of modifications to mortgages in earlier posts, little if anything, is actually happening.
The Wall Street Journal on the last day of the year, December 31, 2008, published an excellent article by Michael Corkery entitled "Mortgage 'Cram-Downs' Loom as Foreclosures Mount". Mr. Corkery described in detail the failure of the loan modification programs instituted by various Federal agencies: The HOPE program which was supposed to help 400,000 homeowners facing foreclosure is less than limited success. As of his writing, only 357 people have signed up. HUD (the Department of Housing and Urban Development) admits that the program has, quoting Mr. Corkery, "been encumbered by high fees and narrow eligibility requirement". Another program FHASecure which was supposed to help 80,000 people facing foreclosure get help, has only met 5% of its goal, 4,100 homeowners. The program stopped taking new applications from desperate homeowners, those who are delinquent and facing potential foreclosure in the near term, as of the 1st of this new year.
The mortgage industry is, on its own, doing loan modifications with borrowers. They report that 37% of those modifications fail within 6 months. According to the chief lobbyist for the Mortgage Bankers Association, an organization with which I am familiar, claim that "Our members have modified 2.8 million loans". NOBODY IS DEFINING "MODIFICATION"! The Mortgage Bankers Association is counting ANY modification, even if it is to defer one payment, let one payment be late.
A mortgage is a contract between a borrower and the lender, or the lender's representative/agent, often the servicer (the folks who send out the bills, collect the checks, and order the foreclosures). A modification is simply ANY CHANGE IN THE TERMS OF THAT CONTRACT - ANY CHANGE!. I can say with certainty, because I deal with getting modifications for my clients and reviewing lender offered and accepted modifications for many clients, who are facing a foreclosure and a bankruptcy to stop it, that the mortgage industry's idea of a modification and everyone else's are at variance.
The industry, very ofter servicers, will typically offer to allow 1 or 2 payments to be put at the end of the mortgage, or might allow an "interest only" payment for a few months, or even lower the interest rate, until the next adjustment, by 1%, like from 9.875% to 8.875%. It might be a big concession for the servicer, and on a temporary basis help the borrower make another few payments, but is doesn't address the real issues with the loan. The problem loans are, by a huge majority, ADJUSTABLE RATE MORTGAGES "ARMS". Many have a base rate, called the index, and a margin which is the amount above the base rate that the lender is charging the borrower. In a sense, it is the lender's profit.
As an example, the typical ARM in trouble today is a 2/28 or 3/27, 6 month LIBOR ARM. Translated, the loans have a fixed rate for 2 or 3 years, and then adjust every six months for 28 or 27 years. The adjustment is determined by the London Interbank Rate for US dollar-denominated deposits - the rate that banks charge each other for money when it's borrowed. The typical 1st adjustment has a maximum of 2% or 3%; adjustments follow every 6 months thereafter, moving up or down by no more than 1%.
I know the next paragraph is numbers intensive, but it shows a real example of why suddenly people cannot pay their mortgages:
Concrete example: Date - May 2004; $125,000 mortgage; 2/28 loan (2 year fixed rate then changes for the next 28 years); interest rate set at the LIBOR plus margin of 6.5%; starting rate 4.5%, (the rate the borrowers payments are based on) which was a "teaser rate" because it was below the rate as determined by the actual formula; formula states 6 month LIBOR which was 1.3862% (April 2004 - always use the prior month), PLUS the MARGIN of 6.5%, equaling a rate by the formula of 7.8862%. The starting payment at the teaser rate was $633.36, plus taxes and insurance. The rate per the formula would have been $907.31. That is $273.95 higher. For 2 years the borrowers are happily paying the $633.36 monthly payment, plus their taxes and insurance, let's say $200, or a total of $833.36. At the 2 year mark, May 2006, the rate changes. The formula calls for the LIBOR, which is at that time, 5.2879%, PLUS the MARGIN of 6.5%. The total is a staggering 11.7679%. The borrowers are saved a little, because the formula also has the 3% maximum rate increase provision. BUT, the increase maximum is taken from the formula rate, not the teaser rate. So, the true formula rate when the loan was signed was 7.8862%. It can only go up 3% on the first adjustment; that means 10.8862% or a payment of $1,179.67 plus $200 for taxes and insurance for a total of $1,379,67 per month, compared to the first 2 years at $833.36. That is a 65% increase!
The figures above are real and the formula is real and they came from a real mortgage. Please understand that not all adjustable rate mortgages are that heavy-handed. Many adjust the same way but the margin is 2.5%. That would lower payments by $280.88 per month. That is one of the modifications that should be made, along with possibly making the loan a 30 year fixed rate loan. IT HAS BECOME ALL ABOUT GREED. Everybody wants what he/she is "entitled" to receive. Unfortunately, these mortgage owners, who are large investors, may get nothing if the house is sold at foreclosure. If we do not get the ability to force modifications, the housing market will continue downward because more and more foreclosed properties will be put up for sale by the lenders.
Some of the why no one will really modify a loan in the next post.
Author's Copyright by Richard I. Isacoff, Esq, January, 2009
www.isacofflaw.com
2009 - a New Year! A better year for homeowners and mortgage owners? NO!, unless there are significant reforms made quickly. While I have explained the issue of modifications to mortgages in earlier posts, little if anything, is actually happening.
The Wall Street Journal on the last day of the year, December 31, 2008, published an excellent article by Michael Corkery entitled "Mortgage 'Cram-Downs' Loom as Foreclosures Mount". Mr. Corkery described in detail the failure of the loan modification programs instituted by various Federal agencies: The HOPE program which was supposed to help 400,000 homeowners facing foreclosure is less than limited success. As of his writing, only 357 people have signed up. HUD (the Department of Housing and Urban Development) admits that the program has, quoting Mr. Corkery, "been encumbered by high fees and narrow eligibility requirement". Another program FHASecure which was supposed to help 80,000 people facing foreclosure get help, has only met 5% of its goal, 4,100 homeowners. The program stopped taking new applications from desperate homeowners, those who are delinquent and facing potential foreclosure in the near term, as of the 1st of this new year.
The mortgage industry is, on its own, doing loan modifications with borrowers. They report that 37% of those modifications fail within 6 months. According to the chief lobbyist for the Mortgage Bankers Association, an organization with which I am familiar, claim that "Our members have modified 2.8 million loans". NOBODY IS DEFINING "MODIFICATION"! The Mortgage Bankers Association is counting ANY modification, even if it is to defer one payment, let one payment be late.
A mortgage is a contract between a borrower and the lender, or the lender's representative/agent, often the servicer (the folks who send out the bills, collect the checks, and order the foreclosures). A modification is simply ANY CHANGE IN THE TERMS OF THAT CONTRACT - ANY CHANGE!. I can say with certainty, because I deal with getting modifications for my clients and reviewing lender offered and accepted modifications for many clients, who are facing a foreclosure and a bankruptcy to stop it, that the mortgage industry's idea of a modification and everyone else's are at variance.
The industry, very ofter servicers, will typically offer to allow 1 or 2 payments to be put at the end of the mortgage, or might allow an "interest only" payment for a few months, or even lower the interest rate, until the next adjustment, by 1%, like from 9.875% to 8.875%. It might be a big concession for the servicer, and on a temporary basis help the borrower make another few payments, but is doesn't address the real issues with the loan. The problem loans are, by a huge majority, ADJUSTABLE RATE MORTGAGES "ARMS". Many have a base rate, called the index, and a margin which is the amount above the base rate that the lender is charging the borrower. In a sense, it is the lender's profit.
As an example, the typical ARM in trouble today is a 2/28 or 3/27, 6 month LIBOR ARM. Translated, the loans have a fixed rate for 2 or 3 years, and then adjust every six months for 28 or 27 years. The adjustment is determined by the London Interbank Rate for US dollar-denominated deposits - the rate that banks charge each other for money when it's borrowed. The typical 1st adjustment has a maximum of 2% or 3%; adjustments follow every 6 months thereafter, moving up or down by no more than 1%.
I know the next paragraph is numbers intensive, but it shows a real example of why suddenly people cannot pay their mortgages:
Concrete example: Date - May 2004; $125,000 mortgage; 2/28 loan (2 year fixed rate then changes for the next 28 years); interest rate set at the LIBOR plus margin of 6.5%; starting rate 4.5%, (the rate the borrowers payments are based on) which was a "teaser rate" because it was below the rate as determined by the actual formula; formula states 6 month LIBOR which was 1.3862% (April 2004 - always use the prior month), PLUS the MARGIN of 6.5%, equaling a rate by the formula of 7.8862%. The starting payment at the teaser rate was $633.36, plus taxes and insurance. The rate per the formula would have been $907.31. That is $273.95 higher. For 2 years the borrowers are happily paying the $633.36 monthly payment, plus their taxes and insurance, let's say $200, or a total of $833.36. At the 2 year mark, May 2006, the rate changes. The formula calls for the LIBOR, which is at that time, 5.2879%, PLUS the MARGIN of 6.5%. The total is a staggering 11.7679%. The borrowers are saved a little, because the formula also has the 3% maximum rate increase provision. BUT, the increase maximum is taken from the formula rate, not the teaser rate. So, the true formula rate when the loan was signed was 7.8862%. It can only go up 3% on the first adjustment; that means 10.8862% or a payment of $1,179.67 plus $200 for taxes and insurance for a total of $1,379,67 per month, compared to the first 2 years at $833.36. That is a 65% increase!
The figures above are real and the formula is real and they came from a real mortgage. Please understand that not all adjustable rate mortgages are that heavy-handed. Many adjust the same way but the margin is 2.5%. That would lower payments by $280.88 per month. That is one of the modifications that should be made, along with possibly making the loan a 30 year fixed rate loan. IT HAS BECOME ALL ABOUT GREED. Everybody wants what he/she is "entitled" to receive. Unfortunately, these mortgage owners, who are large investors, may get nothing if the house is sold at foreclosure. If we do not get the ability to force modifications, the housing market will continue downward because more and more foreclosed properties will be put up for sale by the lenders.
Some of the why no one will really modify a loan in the next post.
Author's Copyright by Richard I. Isacoff, Esq, January, 2009
www.isacofflaw.com
Monday, December 22, 2008
Stopping Foreclosures
FORECLOSURE - MORTGAGE CRISIS - SUBPRIME - PREDATORY - MORTGAGE
You have fallen behind in your mortgage payments and you wonder how long it will be before the mortgage company or bank sends you a notice that they are foreclosing on your home. How long do you have before you are evicted? How can you save your house? Who do you call? What do you do?
I had a biology professor, who was also the football coach, who was fond of saying:
"When in danger
When in Doubt
Run in Circles
Yell and Shout!"
You may feel like doing that but if you are worried because you haven't made all of your payments and are behind more than 1 month, I recommend a different course of action. Some of the suggestions will seem like common sense BECAUSE THEY ARE. That does not mean that everyone pays attention.
1. Figure out why you are behind. That may be simple as "I missed a month of work because of my accident and had no money coming in" or as complex as "I've been falling behind a little each month, and now that the credit cards want more and I am paying higher minimums, I am even further behind". Knowing why you have fallen behind is critical to not losing your house, as I will explain as we go along.
2. As soon as you know that you are going to miss a payment, determine when you can make it, "for sure", and call your mortgage company/bank and let them know. Your file will be noted which will let a collector know that you are being responsible and are aware of the fact that the missed payment is a problem. By telling them a "for certain" date that the payment will be made and making that payment, you will eliminate needless calls and letters to you and let the lender know that you are doing your best to manage your money and have every intention of honoring the mortgage terms and keeping your home
3. If you suffer a work layoff or lose a job, or if you have a two-income household that has suddenly become one income, and believe that you are going to start to fall behind, call the lender and let them know. They may be able to give you additional time, grant a one-time forbearance, and move the payment or maybe even two payments to the end of the loan, so you can get caught-up, or make other arrangements. As this is being written, there are some mortgagees who will do hardship loan modifications because of layoff
4. Assuming that the above issues have been dealt with, or you have gone beyond the point of anticipating a default in payment and have missed 2 or 3 or them, expect to get a "Notice of Default" from the lender.
5. Every state has its own rules, but there are some big commonalities. The Notice will state how much is owed to get caught up, including interest, late fees, actual costs (such as an attorney's fee, a title report, possibly a real estate tax document from the city or town, etc.) and the missed principal payments. In Massachusetts, once that Notice is given, it MUST allow the borrower 90 days to cure the default, and during that period the lender can take no action against the borrower. Other states have differing time period, but almost all have one to give a borrower a chance to catch up. ONCE THAT NOTICE IS RECEIVED, THE CLOCK IS TICKING. In reality it has been right along, just more quietly.
6. If your state is a "Non-Judicial" foreclosure state, such as is the case with Massachusetts, there DOES NOT have to be any court proceeding to foreclose on your property. You gave the lender the right to foreclose, for non-payment and other things, in your mortgage document itself. There are legal requirements, set up by state statute, but a Court hearing is not one of them. This means that you probably WILL NOT have your day in Court to plead your case to a judge. In most situations it may not matter, but if there are irregularities in the mortgage process, or if there are documents showing the lenders right to foreclose that have not been put in the public record as the law requires, you NEED a Court to stop the process. If a foreclosure is imminent, CALL AN ATTORNEY. Most will give you some basic advice of what to do, without charge.
7. If you believe that your mortgage is not what you thought you were getting/buying, and the payments went up faster and higher than you were promised they would, contact the LOSS MITIGATION department at the lender/servicer. If you have a legitimate case, you may find that a modification, to get your payments reasonable and deal with the back payments that are owed, can be accomplished without outside intervention. If you have no luck, DO NOT WAIT - GET HELP.
8. If you believe that something is wrong with the mortgage, and for that matter even if everything appears to be okay, GATHER ALL OF THE DOCUMENTS YOU RECEIVED AT YOUR MORTGAGE CLOSING -PURCHASE OR REFINANCE. Anyone who will be helping you will want to see the paperwork you were given, both signed and unsigned. If you do not have a copy, call the attorney or company who did the closing and ask for a copy. You have a right to the documents, but if you were given a copy at closing, you might have to pay a copy cost for the second set.
9. Once you know that there is a problem in making timely payments, prepare a realistic list of your MONTHLY EXPENSES, such as mortgage, auto insurance, gasoline, electricity, heating fuel, food, clothes, car payment, etc. Then, prepare a list of your income. Include all sources - wages from employment, child support, alimony, food stamps, any form of disability income, unemployment compensation etc. Be certain that the figures are accurate and that you can supply documentation for every item you claim as income, or as an expense. The reason for this preparation is that the lender will want that information, along with your most recent taxes, as it considers any request for a modification or forbearance agreement. You do not want to wait one minute longer than you have to in starting the process, so get ready ahead of time.
10. If you DO NOT have luck with direct contact with your lender, call an attorney who handles debt problems. The attorney may have experience in bankruptcy, or real estate, or debtor/creditor work-outs, or a number of other classifications. Just ask when you call as to whether the attorney deals with mortgage problems. In all likelihood, if your mortgage is delinquent, other bills are also, especially credit cards, if you have any. Have that list ready when you speak to the attorney or the person doing intake.
CAUTION: DO NOT FALL FOR THE INTERNET/RADIO ADVERTISING "GET OUT OF DEBT FOR PENNIES ON THE DOLLAR" COMPANIES. Most, but not all, are charging for services they cannot provide
11. Think long and hard what sacrifices you are willing to make to keep your home. You will probably have to devote ALL non-essential income to catching-up on mortgage payments
12. You may be advised that the only way to save the house is through filing for Bankruptcy Protection and opting for a Chapter 13 Debt Repayment Plan. The Bankruptcy laws are in place to protect people who get behind in payments/"get over their heads' in debt. Assuming you are not trying to cheat creditors by hiding assets (fraud) or running up bills purposely, knowing that you are going to file bankruptcy, IT IS YOUR RIGHT TO USE THE LAW TO PROTECT YOU AND YOUR FAMILY.
I will post telephone number s of various organizations which are available nationwide, which can direct you to a local or federal agency to help with a loan modification. AS OF THIS DATE THERE IS NO FEDERAL BAILOUT FOR BORROWERS - JUST THE BANKS. (see prior posts)
IF YOU HAVE NO ENTITY OR PERSON LOCALLY WHO CAN HELP YOU, SEND ME AN E-MAIL AND I WILL REFER YOU TO AN AGENCY OR ATTORNEY WHO SHOULD BE ABLE TO ASSIST
Author's Copyright by Richard I. Isacoff, Esq - December, 2008
http://www.isacofflaw.com/
You have fallen behind in your mortgage payments and you wonder how long it will be before the mortgage company or bank sends you a notice that they are foreclosing on your home. How long do you have before you are evicted? How can you save your house? Who do you call? What do you do?
I had a biology professor, who was also the football coach, who was fond of saying:
"When in danger
When in Doubt
Run in Circles
Yell and Shout!"
You may feel like doing that but if you are worried because you haven't made all of your payments and are behind more than 1 month, I recommend a different course of action. Some of the suggestions will seem like common sense BECAUSE THEY ARE. That does not mean that everyone pays attention.
1. Figure out why you are behind. That may be simple as "I missed a month of work because of my accident and had no money coming in" or as complex as "I've been falling behind a little each month, and now that the credit cards want more and I am paying higher minimums, I am even further behind". Knowing why you have fallen behind is critical to not losing your house, as I will explain as we go along.
2. As soon as you know that you are going to miss a payment, determine when you can make it, "for sure", and call your mortgage company/bank and let them know. Your file will be noted which will let a collector know that you are being responsible and are aware of the fact that the missed payment is a problem. By telling them a "for certain" date that the payment will be made and making that payment, you will eliminate needless calls and letters to you and let the lender know that you are doing your best to manage your money and have every intention of honoring the mortgage terms and keeping your home
3. If you suffer a work layoff or lose a job, or if you have a two-income household that has suddenly become one income, and believe that you are going to start to fall behind, call the lender and let them know. They may be able to give you additional time, grant a one-time forbearance, and move the payment or maybe even two payments to the end of the loan, so you can get caught-up, or make other arrangements. As this is being written, there are some mortgagees who will do hardship loan modifications because of layoff
4. Assuming that the above issues have been dealt with, or you have gone beyond the point of anticipating a default in payment and have missed 2 or 3 or them, expect to get a "Notice of Default" from the lender.
5. Every state has its own rules, but there are some big commonalities. The Notice will state how much is owed to get caught up, including interest, late fees, actual costs (such as an attorney's fee, a title report, possibly a real estate tax document from the city or town, etc.) and the missed principal payments. In Massachusetts, once that Notice is given, it MUST allow the borrower 90 days to cure the default, and during that period the lender can take no action against the borrower. Other states have differing time period, but almost all have one to give a borrower a chance to catch up. ONCE THAT NOTICE IS RECEIVED, THE CLOCK IS TICKING. In reality it has been right along, just more quietly.
6. If your state is a "Non-Judicial" foreclosure state, such as is the case with Massachusetts, there DOES NOT have to be any court proceeding to foreclose on your property. You gave the lender the right to foreclose, for non-payment and other things, in your mortgage document itself. There are legal requirements, set up by state statute, but a Court hearing is not one of them. This means that you probably WILL NOT have your day in Court to plead your case to a judge. In most situations it may not matter, but if there are irregularities in the mortgage process, or if there are documents showing the lenders right to foreclose that have not been put in the public record as the law requires, you NEED a Court to stop the process. If a foreclosure is imminent, CALL AN ATTORNEY. Most will give you some basic advice of what to do, without charge.
7. If you believe that your mortgage is not what you thought you were getting/buying, and the payments went up faster and higher than you were promised they would, contact the LOSS MITIGATION department at the lender/servicer. If you have a legitimate case, you may find that a modification, to get your payments reasonable and deal with the back payments that are owed, can be accomplished without outside intervention. If you have no luck, DO NOT WAIT - GET HELP.
8. If you believe that something is wrong with the mortgage, and for that matter even if everything appears to be okay, GATHER ALL OF THE DOCUMENTS YOU RECEIVED AT YOUR MORTGAGE CLOSING -PURCHASE OR REFINANCE. Anyone who will be helping you will want to see the paperwork you were given, both signed and unsigned. If you do not have a copy, call the attorney or company who did the closing and ask for a copy. You have a right to the documents, but if you were given a copy at closing, you might have to pay a copy cost for the second set.
9. Once you know that there is a problem in making timely payments, prepare a realistic list of your MONTHLY EXPENSES, such as mortgage, auto insurance, gasoline, electricity, heating fuel, food, clothes, car payment, etc. Then, prepare a list of your income. Include all sources - wages from employment, child support, alimony, food stamps, any form of disability income, unemployment compensation etc. Be certain that the figures are accurate and that you can supply documentation for every item you claim as income, or as an expense. The reason for this preparation is that the lender will want that information, along with your most recent taxes, as it considers any request for a modification or forbearance agreement. You do not want to wait one minute longer than you have to in starting the process, so get ready ahead of time.
10. If you DO NOT have luck with direct contact with your lender, call an attorney who handles debt problems. The attorney may have experience in bankruptcy, or real estate, or debtor/creditor work-outs, or a number of other classifications. Just ask when you call as to whether the attorney deals with mortgage problems. In all likelihood, if your mortgage is delinquent, other bills are also, especially credit cards, if you have any. Have that list ready when you speak to the attorney or the person doing intake.
CAUTION: DO NOT FALL FOR THE INTERNET/RADIO ADVERTISING "GET OUT OF DEBT FOR PENNIES ON THE DOLLAR" COMPANIES. Most, but not all, are charging for services they cannot provide
11. Think long and hard what sacrifices you are willing to make to keep your home. You will probably have to devote ALL non-essential income to catching-up on mortgage payments
12. You may be advised that the only way to save the house is through filing for Bankruptcy Protection and opting for a Chapter 13 Debt Repayment Plan. The Bankruptcy laws are in place to protect people who get behind in payments/"get over their heads' in debt. Assuming you are not trying to cheat creditors by hiding assets (fraud) or running up bills purposely, knowing that you are going to file bankruptcy, IT IS YOUR RIGHT TO USE THE LAW TO PROTECT YOU AND YOUR FAMILY.
I will post telephone number s of various organizations which are available nationwide, which can direct you to a local or federal agency to help with a loan modification. AS OF THIS DATE THERE IS NO FEDERAL BAILOUT FOR BORROWERS - JUST THE BANKS. (see prior posts)
IF YOU HAVE NO ENTITY OR PERSON LOCALLY WHO CAN HELP YOU, SEND ME AN E-MAIL AND I WILL REFER YOU TO AN AGENCY OR ATTORNEY WHO SHOULD BE ABLE TO ASSIST
Author's Copyright by Richard I. Isacoff, Esq - December, 2008
http://www.isacofflaw.com/
Saturday, December 20, 2008
Foreclosures Continue
FORECLOSURE - TARP - BAILOUT - MORTGAGE CRISIS - CREDIT CRISIS - PAULSON
Secretary of the Treasury Paulson has informed Congress that the second half of the $700 billion bailout money has to be released for use NOW, because the first $350 billion has been used, none to help homeowners in foreclosure. More outrageous is that none of the remaining funds are being set aside to stop lenders from taking borrowers homes.
The pace of foreclosure sales is going to accelerate after the 1st of the year; the mortatoriums put in place by many states will be expiring, letting the Mortgage Servicers move against delinquent borrowers. Neither Congress nor the Treasury, which controls the TARP money (bailout), is taking any action to save homes. Despite warnings, from economists, the FDIC, housing industry experts, and investment market experts, that the credit crisis and economy's crisis will not abate until the housing issues are addressed, the present Administration and those entrusted to fix the problem have chosen to continue on the course of action initally taken -money to financial industry entities.
There is a logic behind this approach in theory, but reality has shown it not to work. Congress thought that by giving money to financial institutions there would be a "trickle down" to homeowners; that banks would lend money to individuals, enact loan modifications to save homes, and generally ease credit (the easing of credit to be addressed in a later post). Instead, money is being hoarded by the banks which are recieving the funds. They are solidifying their balance sheets, increasing their reserve of cash, but not lending, especially not lending to homeowners for loan modifications.
When this matter is brought up, the near unanimous response is " we cannot modify loans because there are no loans, just securities, and the investors will not permit modifications". Why is Congress and the Treasury silent on this issue. The "problem" can be fixed but not without political fallout. Would there be isues with the investment community, sure, but any dislocations are minimal compared to the downward spiral we are going to continue to endure if the housing crisis is not fixed.
As we consider why our friends, neighbors, and we lose our houses, we must put pressure on the Treasury and Congress to stop the financial insanity of allowing more and more homes to be sold at foreclosures, ensuring losses to the lenders, or investors, and increasing the glut of homes for sale, thereby driving down prices further, forcing more institutuions to need bailout money.
Putting aside politics and government inaction, the next installment will deal with credit and how to save your home.
Author's Copyright by Richard I. Isacoff, Esq - December 2008
http://www.isacofflaw.com/
Secretary of the Treasury Paulson has informed Congress that the second half of the $700 billion bailout money has to be released for use NOW, because the first $350 billion has been used, none to help homeowners in foreclosure. More outrageous is that none of the remaining funds are being set aside to stop lenders from taking borrowers homes.
The pace of foreclosure sales is going to accelerate after the 1st of the year; the mortatoriums put in place by many states will be expiring, letting the Mortgage Servicers move against delinquent borrowers. Neither Congress nor the Treasury, which controls the TARP money (bailout), is taking any action to save homes. Despite warnings, from economists, the FDIC, housing industry experts, and investment market experts, that the credit crisis and economy's crisis will not abate until the housing issues are addressed, the present Administration and those entrusted to fix the problem have chosen to continue on the course of action initally taken -money to financial industry entities.
There is a logic behind this approach in theory, but reality has shown it not to work. Congress thought that by giving money to financial institutions there would be a "trickle down" to homeowners; that banks would lend money to individuals, enact loan modifications to save homes, and generally ease credit (the easing of credit to be addressed in a later post). Instead, money is being hoarded by the banks which are recieving the funds. They are solidifying their balance sheets, increasing their reserve of cash, but not lending, especially not lending to homeowners for loan modifications.
When this matter is brought up, the near unanimous response is " we cannot modify loans because there are no loans, just securities, and the investors will not permit modifications". Why is Congress and the Treasury silent on this issue. The "problem" can be fixed but not without political fallout. Would there be isues with the investment community, sure, but any dislocations are minimal compared to the downward spiral we are going to continue to endure if the housing crisis is not fixed.
As we consider why our friends, neighbors, and we lose our houses, we must put pressure on the Treasury and Congress to stop the financial insanity of allowing more and more homes to be sold at foreclosures, ensuring losses to the lenders, or investors, and increasing the glut of homes for sale, thereby driving down prices further, forcing more institutuions to need bailout money.
Putting aside politics and government inaction, the next installment will deal with credit and how to save your home.
Author's Copyright by Richard I. Isacoff, Esq - December 2008
http://www.isacofflaw.com/
Saturday, December 13, 2008
The New Villian? C.R.A.?
FORECLOSURE - MORTGAGE CRISIS - BAILOUT - HOUSING - MORTGAGE
Surprisingly, or maybe not, there was an Op-Ed Opinion in the December 11, 2008 edition of the New York Times, blaming, to a large part the CRA (Community Reinvestment Act) for the current mortgage crisis. In fairness, in the 7th paragraph, the author states "One cannot say with any certainty whether the more important cause of the current housing crisis was affordable-housing mandates or the actions of investment banks and rating agencies."
The Community Reinvestment Act was passed in 1977 to stop banks from continuing a lending practice called "redlining". Simply put, this was a practice where lenders (almost all Banks at that time) would take maps of their marketplace(s) and draw a red line around the less desirable areas, predominately minority neighborhoods, and NOT grant loans to people in them. Was this aimed at minorities? In some cases yes; in many it was aimed at an economic issue. The fact that a disproportionate number of the people affected were minorities did not seem to matter.
The CRA did not mandate bad loans, but rather is forced Banks to go out into the community and figure out a way to make good loans more available to anyone in these "redlined" (circled) parts of town. Later, FannieMae and FreddieMac were supposed to grant a large percentage (approx. 25%-33%) of their loans to low and middle income potential homeowners. It DID NOT require that loans should be made to people who could not afford the monthly payments. Innovative lending programs and grant programs were encouraged. That DID NOT mean ARMs with initially artificially low (teaser) interest rates, but low fixed rates mortgages coupled with grants for long-term home ownership; and the use of available federal housing funds along with good lending policy to assist lower-income people to buy a home that they COULD AFFORD, basically substituting a mortgage payment, and insurance and tax payments, for paying a landlord rent.
There was nothing radical about the CRA except that it recognized that low and moderate income people, often minorities, were purposely or inadvertently excluded from home ownership. For 25 years all went well. The line of demarcation, when the mortgage business fell off of a cliff, was the point when mortgages were securitized. People and institutions buying these securities, backed by mortgages, relied on rating agencies to state whether there was risk, and if there was, how much. These companies that placed a grade on the securities backed by mortgages (MBSs), did fine at the start. HOWEVER, once the players, mortgage originators, mortgage brokers, mortgage lenders, and all of the others in the chain, realized that if the mortgages were sold to investors packaged in bundles of $300 million or $500million ... or more, and no one lender owned a mortgage, no one could lose if a mortgage failed and the property was sold at foreclosure. No one but the holder of the security - and, of course, the individual homeowner
Was this the fault of the CRA? NO!!! It was a failure of the rating agencies and others to recognize that once no one making the loans would lose anything, so that they would make any loan possible. REVERSE RED-LINING BEGAN. Rather than avoid certain areas, lenders, now primarily NOT banks, purposely went after people in those neighborhoods promising the American dream - Owning your own HOME. The practice of enticing people to buy a loan at a low initial rate, hiding the fact that the rate would JUMP, became commonplace. This practice WAS NOT confined to low and moderate income people. It became pervasive in the mortgage industry. Buy NOW, Pay later - or never if you can keep refinancing your home as values increase.
There are plenty of people and organizations and laws to blame. Most just didn't get it - many loved the big paychecks they received. People forgot the principle that whatever goes up, will and must come down. And yes, that applies to home prices. Further, once the teaser rate of 3% or 4% went away/expired and the real rate, of 8%,10%, or even 11% set in, the monthly payments WERE NOT affordable.
I have case after case where I am trying to save homes because of that very scenario. Do the buyers and mortgaged owners want to give up their homes? Did those folks know they wouldn't be able to pay? Do the majority of them not care and just give up the house and move-on? NO to all the the posed questions.
We all need a CRA, but a much broader one now - a National Reinvestment Act - programs to save housing and allow new buyers to do so.
Author's Copyright by Richard I Isacoff, Esq - December 2008
http://www.isacoffflaw.com/
Surprisingly, or maybe not, there was an Op-Ed Opinion in the December 11, 2008 edition of the New York Times, blaming, to a large part the CRA (Community Reinvestment Act) for the current mortgage crisis. In fairness, in the 7th paragraph, the author states "One cannot say with any certainty whether the more important cause of the current housing crisis was affordable-housing mandates or the actions of investment banks and rating agencies."
The Community Reinvestment Act was passed in 1977 to stop banks from continuing a lending practice called "redlining". Simply put, this was a practice where lenders (almost all Banks at that time) would take maps of their marketplace(s) and draw a red line around the less desirable areas, predominately minority neighborhoods, and NOT grant loans to people in them. Was this aimed at minorities? In some cases yes; in many it was aimed at an economic issue. The fact that a disproportionate number of the people affected were minorities did not seem to matter.
The CRA did not mandate bad loans, but rather is forced Banks to go out into the community and figure out a way to make good loans more available to anyone in these "redlined" (circled) parts of town. Later, FannieMae and FreddieMac were supposed to grant a large percentage (approx. 25%-33%) of their loans to low and middle income potential homeowners. It DID NOT require that loans should be made to people who could not afford the monthly payments. Innovative lending programs and grant programs were encouraged. That DID NOT mean ARMs with initially artificially low (teaser) interest rates, but low fixed rates mortgages coupled with grants for long-term home ownership; and the use of available federal housing funds along with good lending policy to assist lower-income people to buy a home that they COULD AFFORD, basically substituting a mortgage payment, and insurance and tax payments, for paying a landlord rent.
There was nothing radical about the CRA except that it recognized that low and moderate income people, often minorities, were purposely or inadvertently excluded from home ownership. For 25 years all went well. The line of demarcation, when the mortgage business fell off of a cliff, was the point when mortgages were securitized. People and institutions buying these securities, backed by mortgages, relied on rating agencies to state whether there was risk, and if there was, how much. These companies that placed a grade on the securities backed by mortgages (MBSs), did fine at the start. HOWEVER, once the players, mortgage originators, mortgage brokers, mortgage lenders, and all of the others in the chain, realized that if the mortgages were sold to investors packaged in bundles of $300 million or $500million ... or more, and no one lender owned a mortgage, no one could lose if a mortgage failed and the property was sold at foreclosure. No one but the holder of the security - and, of course, the individual homeowner
Was this the fault of the CRA? NO!!! It was a failure of the rating agencies and others to recognize that once no one making the loans would lose anything, so that they would make any loan possible. REVERSE RED-LINING BEGAN. Rather than avoid certain areas, lenders, now primarily NOT banks, purposely went after people in those neighborhoods promising the American dream - Owning your own HOME. The practice of enticing people to buy a loan at a low initial rate, hiding the fact that the rate would JUMP, became commonplace. This practice WAS NOT confined to low and moderate income people. It became pervasive in the mortgage industry. Buy NOW, Pay later - or never if you can keep refinancing your home as values increase.
There are plenty of people and organizations and laws to blame. Most just didn't get it - many loved the big paychecks they received. People forgot the principle that whatever goes up, will and must come down. And yes, that applies to home prices. Further, once the teaser rate of 3% or 4% went away/expired and the real rate, of 8%,10%, or even 11% set in, the monthly payments WERE NOT affordable.
I have case after case where I am trying to save homes because of that very scenario. Do the buyers and mortgaged owners want to give up their homes? Did those folks know they wouldn't be able to pay? Do the majority of them not care and just give up the house and move-on? NO to all the the posed questions.
We all need a CRA, but a much broader one now - a National Reinvestment Act - programs to save housing and allow new buyers to do so.
Author's Copyright by Richard I Isacoff, Esq - December 2008
http://www.isacoffflaw.com/
Thursday, December 11, 2008
Homeowners & Mortgages & Foreclosures & TARP?
FORECLOSURE - TARP - MORTGAGE - BAILOUT - SUBPRIME
Remember the Mortgage Backed Securities that are being called "toxic assets"? The toxicity is the inability to value these interest bearing bonds, derived from mortgages (hence called "derivatives"). The entire market for MBS was based on the sales pitch, by Lehman Bros, Goldman Sachs et al, that HOMEOWNERS WOULD ALWAYS PAY 100% of their debt. That may have been true when, if there was a problem, the homeowner/borrower could meet with the LENDER, discuss the problem and work out a solution. Mortgages have become rare - they have become securities. There is no owner, no banker, no lender to whom you can ask for help and advice.
The FDIC proposed refinancing borrowers and maybe even paying the loan servicers, the entities that collect monthly mortgage payments and sent them to the investors. The idea is that the servicers have no incentive to do more than send bills, collect money, and pay the investors. The PSAs (see earlier posts) define, in extreme detail, precisely what Servicers can do. The investors want the interest that they were "promised" and they will not accept anything less. That attitude will get them far less than if borrowers pay most of what is owned, or perhaps 100% of what is owed but at a lower interest rate.
If the FDIC has it wrong, and the investors are not thinking clearly due to a near panic, what is the solution? Solution? What is the issue? FORECLOSURES. Whether the reason a homeowner facing a loss of his/her home is "at fault" for reaching beyond his/her monthly income, or if the reason is that the borrower was sold a loan product that was affordable for the first two years and then had the monthly payment jump hundreds of dollars, is DOES NOT MATTER; it is irrelevant. We have to stop the accelerating the loss of homes by foreclosures.
Elizabeth Warren, a noted Professor at Harvard School of Law, and the newly appointed head of the House Advisory Committee to Oversee TARP, has taken issue with the Treasury Department's cure-all of giving money to Banks as the magic pill. She is quite clear that, while that may be part of the answer, stopping foreclosures is the major step we need to take. Offering low interest rate mortgages for first-time homebuyers is great, but if the housing is continuing to drop in value because of the level of foreclosures, no one is going to buy now. Everyone will wait for the bottom which, as a result, gets lower and lower.
We need a balanced approach. Pass laws to allow Servicers to negotiate with mortgagor-homeowners who are in trouble. This means Congress has to take-on the very nature of the Securitization of mortgages and the resulting PSA contracts. Offer incentives for Servicers to do the extra work. Set up a new Federal Mortgage Corporation, similar to that from the 1930s to increase the accessibility to affordable refinancing for homeowners who can pay, but perhaps not at the higher rate that were sold.
There is no easy answer. There is no way for lawmakers to assure that they will be able to brag, at election time, that they "did the right thing". Congress cannot keep worrying about being re-elected and therefore afraid of offending the monied interests. It is time to help homeowners. Investors knew, or should have known the risks. Critics will argue that MBSs are in average workers 401K plans,and comprise a large portion of pension plans. Using an overused medical analogy, perhaps we had better not worry about the broken leg until we restart the patient's heart!
Author's Copyright by Richad I Isacoff, Esq -December, 2008
http://www.isacofflaw.com/
(Note: This post refers to earlier writings. You are urged to read those submissions)
This is one of those times when a confession is necessary: I have a subscription to the Wall Street Journal, in fact both print and online! Now, in ordinary times, I would not have even mentioned my reading habits but, as I have stated before, these are not ordinary times.
The WSJ has published two editorial pieces opining that the FDIC proposal to get funds to homeowners by modifying mortgages would cost more than the $24 billion originally estimated. The Journal cited Treasury Department and White House critics that are purported to have shown the actual cost could be as high as $70 billion. This is to save houses; to end the cycle of foreclosures and stabilize the economy. This, it was deemed, was too much to pay for stability in the marketplace. Here, the marketplace does not refer only to the real estate market, but, to some extent, to the securities market as well, and, in reality, OUR ECONOMY.Remember the Mortgage Backed Securities that are being called "toxic assets"? The toxicity is the inability to value these interest bearing bonds, derived from mortgages (hence called "derivatives"). The entire market for MBS was based on the sales pitch, by Lehman Bros, Goldman Sachs et al, that HOMEOWNERS WOULD ALWAYS PAY 100% of their debt. That may have been true when, if there was a problem, the homeowner/borrower could meet with the LENDER, discuss the problem and work out a solution. Mortgages have become rare - they have become securities. There is no owner, no banker, no lender to whom you can ask for help and advice.
The FDIC proposed refinancing borrowers and maybe even paying the loan servicers, the entities that collect monthly mortgage payments and sent them to the investors. The idea is that the servicers have no incentive to do more than send bills, collect money, and pay the investors. The PSAs (see earlier posts) define, in extreme detail, precisely what Servicers can do. The investors want the interest that they were "promised" and they will not accept anything less. That attitude will get them far less than if borrowers pay most of what is owned, or perhaps 100% of what is owed but at a lower interest rate.
If the FDIC has it wrong, and the investors are not thinking clearly due to a near panic, what is the solution? Solution? What is the issue? FORECLOSURES. Whether the reason a homeowner facing a loss of his/her home is "at fault" for reaching beyond his/her monthly income, or if the reason is that the borrower was sold a loan product that was affordable for the first two years and then had the monthly payment jump hundreds of dollars, is DOES NOT MATTER; it is irrelevant. We have to stop the accelerating the loss of homes by foreclosures.
Elizabeth Warren, a noted Professor at Harvard School of Law, and the newly appointed head of the House Advisory Committee to Oversee TARP, has taken issue with the Treasury Department's cure-all of giving money to Banks as the magic pill. She is quite clear that, while that may be part of the answer, stopping foreclosures is the major step we need to take. Offering low interest rate mortgages for first-time homebuyers is great, but if the housing is continuing to drop in value because of the level of foreclosures, no one is going to buy now. Everyone will wait for the bottom which, as a result, gets lower and lower.
We need a balanced approach. Pass laws to allow Servicers to negotiate with mortgagor-homeowners who are in trouble. This means Congress has to take-on the very nature of the Securitization of mortgages and the resulting PSA contracts. Offer incentives for Servicers to do the extra work. Set up a new Federal Mortgage Corporation, similar to that from the 1930s to increase the accessibility to affordable refinancing for homeowners who can pay, but perhaps not at the higher rate that were sold.
There is no easy answer. There is no way for lawmakers to assure that they will be able to brag, at election time, that they "did the right thing". Congress cannot keep worrying about being re-elected and therefore afraid of offending the monied interests. It is time to help homeowners. Investors knew, or should have known the risks. Critics will argue that MBSs are in average workers 401K plans,and comprise a large portion of pension plans. Using an overused medical analogy, perhaps we had better not worry about the broken leg until we restart the patient's heart!
Author's Copyright by Richad I Isacoff, Esq -December, 2008
http://www.isacofflaw.com/
Wednesday, December 3, 2008
How Long Can You Tread Water?
FORECLOSURE CRISIS - CREDIT CRISIS - BAILOUT - MORTGAGE ISSUES
Those of you who are fans of William Cosby, EdD, a/k/a Bill Cosby comedian, might remember the line from his "Noah and the Lord" routine. That is the position we are in now with regard to the mortgage crisis (ongoing). The wild swings in the stock markets have grabbed the headlines on nights that the 3 automakers have not. Guess what? It all seemed to start with the mortgage mess. If you have not already done so, I suggest that you read my previous posts that have dealt with the credit and mortgage crunch. In reality, the mortgage difficulties are really securities markets problems, as I have explained before.
Below is my contribution to a discussion which is taking place on Wharton School of Business's online Journal Knowledge@Wharton. The article in its entirety can be read by using the link immediately following the text of this post. While it is written in a more technical fashion that I post, a careful reading will put many issues into perspective; at least into some perspective (although not all of them).
Since my submission to "Knowledge", there has been a flurry of activity of Sheila Bair's (head of FDIC) proposals to help stop the foreclosure slaughter. I will be posting my analysis of the criticism to the idea that mortgages be modified with the Federal Government underwriting part of the losses incurred by lenders and loan servicers, within a day or two - I am just waiting for some dust to settle, or more in keeping with the title above, until the flood waters recede.
(see link at end of this posting for full article entitled):
The Fairness Issue: How to Cope with the Flood of Foreclosures
Published: November 26, 2008 in Knowledge@Wharton
(my commentary) In "The Fairness Issue" article an excellent job was done in presenting nearly all views of the mortgage scene. As with views of anything however, the viewer's perspective determines what is seen, and what is not seen. The problems are set out well, but if one relies on the economists' and bankers' views, one will get only the macro financial picture.
There is no taking into account the effect on actual homeowners and their effect on the economy as a whole. One could argue that the micro analysis, the review of individual mortgagors, does not really matter, because no one of them matters in the scheme of the economy, ours or global. The argument would miss the point while being correct a the same time; it was this logic that gave us "toxic assets", mortgage-Backed Securities.(To me, the concept of an asset being "toxic" is an oxymoron and would only apply to enriched uranium and the like anyway). William Frey's comment that no one anticipated a catastrophic meltdown is exactly on point, but we had such a crash. If millions of individual mortgages created the problem, then why would there be a global solution?
Professors Guttentag and Wachter are correct in the assessment that the housing market should be the primary concern. If so, a semblance of normalcy can be restored; then maybe confidence can also recover. I have seen this with my clients. At the present, most of my time is spent trying to save homes, not just houses-- but homes. The fear, anxiety, and recriminations created by a foreclosure destroy families. Working with mortgagees, and their appointed servicers empowered by PSAs has proven to be a challenge. There are no rules; the government has let the servicers determine what happens in our economic life. Ms. Bair's [Chair of the FDIC] proposal through the FDIC, flawed as it may be, at least gives a ray of hope and a view towards Main Street rather than Wall Street.
Mr. Smetters' sentiment is a valid position, but begs the question: We cannot fix the housing markets, determine the value of mortgage-backeds, and effectively put in place long-term solutions by taking a broad brush approach. The Federal Government, has to back-stop the losses; it has to allow the MBSs to be taken apart, if necessary, to modify loans through write-downs of principal, interest, or both. The regulators are in place. FDIC, OCC, and the Treasury just to start; and we could always resurrect the RTC (Resolution Trust Corporation). I make no claims of originality in my ideas, but I ran failed S&Ls in the mid-80s, for the State of Maryland and with FSLIC, where there were depositors who could not get their money for months, and where loans were just as volatile as the ones in the MBSs. There was no "one size fits all" solution then, and there is not one now.
Last, if we are concerned about cost, we have already given the markets many times more than it would take to shore-up the MBSs by underwriting a portion of the losses an investor might realize. As Bill Cosby, certainly not an economist, so aptly stated in a routine, "Noah, how long can you tread water?"(asked the Lord). We had better ask ourselves that before the flood of foreclosures drown us all in unquenchable debt. The fire would be easier to handle.
full article at http://knowledge.wharton.upenn.edu/article.cfm?articleID=2104&post
Author's Copyright by Richard I. Isacoff, Esq., December, 2008
http://www.isacofflaw.com/
Those of you who are fans of William Cosby, EdD, a/k/a Bill Cosby comedian, might remember the line from his "Noah and the Lord" routine. That is the position we are in now with regard to the mortgage crisis (ongoing). The wild swings in the stock markets have grabbed the headlines on nights that the 3 automakers have not. Guess what? It all seemed to start with the mortgage mess. If you have not already done so, I suggest that you read my previous posts that have dealt with the credit and mortgage crunch. In reality, the mortgage difficulties are really securities markets problems, as I have explained before.
Below is my contribution to a discussion which is taking place on Wharton School of Business's online Journal Knowledge@Wharton. The article in its entirety can be read by using the link immediately following the text of this post. While it is written in a more technical fashion that I post, a careful reading will put many issues into perspective; at least into some perspective (although not all of them).
Since my submission to "Knowledge", there has been a flurry of activity of Sheila Bair's (head of FDIC) proposals to help stop the foreclosure slaughter. I will be posting my analysis of the criticism to the idea that mortgages be modified with the Federal Government underwriting part of the losses incurred by lenders and loan servicers, within a day or two - I am just waiting for some dust to settle, or more in keeping with the title above, until the flood waters recede.
(see link at end of this posting for full article entitled):
The Fairness Issue: How to Cope with the Flood of Foreclosures
Published: November 26, 2008 in Knowledge@Wharton
(my commentary) In "The Fairness Issue" article an excellent job was done in presenting nearly all views of the mortgage scene. As with views of anything however, the viewer's perspective determines what is seen, and what is not seen. The problems are set out well, but if one relies on the economists' and bankers' views, one will get only the macro financial picture.
There is no taking into account the effect on actual homeowners and their effect on the economy as a whole. One could argue that the micro analysis, the review of individual mortgagors, does not really matter, because no one of them matters in the scheme of the economy, ours or global. The argument would miss the point while being correct a the same time; it was this logic that gave us "toxic assets", mortgage-Backed Securities.(To me, the concept of an asset being "toxic" is an oxymoron and would only apply to enriched uranium and the like anyway). William Frey's comment that no one anticipated a catastrophic meltdown is exactly on point, but we had such a crash. If millions of individual mortgages created the problem, then why would there be a global solution?
Professors Guttentag and Wachter are correct in the assessment that the housing market should be the primary concern. If so, a semblance of normalcy can be restored; then maybe confidence can also recover. I have seen this with my clients. At the present, most of my time is spent trying to save homes, not just houses-- but homes. The fear, anxiety, and recriminations created by a foreclosure destroy families. Working with mortgagees, and their appointed servicers empowered by PSAs has proven to be a challenge. There are no rules; the government has let the servicers determine what happens in our economic life. Ms. Bair's [Chair of the FDIC] proposal through the FDIC, flawed as it may be, at least gives a ray of hope and a view towards Main Street rather than Wall Street.
Mr. Smetters' sentiment is a valid position, but begs the question: We cannot fix the housing markets, determine the value of mortgage-backeds, and effectively put in place long-term solutions by taking a broad brush approach. The Federal Government, has to back-stop the losses; it has to allow the MBSs to be taken apart, if necessary, to modify loans through write-downs of principal, interest, or both. The regulators are in place. FDIC, OCC, and the Treasury just to start; and we could always resurrect the RTC (Resolution Trust Corporation). I make no claims of originality in my ideas, but I ran failed S&Ls in the mid-80s, for the State of Maryland and with FSLIC, where there were depositors who could not get their money for months, and where loans were just as volatile as the ones in the MBSs. There was no "one size fits all" solution then, and there is not one now.
Last, if we are concerned about cost, we have already given the markets many times more than it would take to shore-up the MBSs by underwriting a portion of the losses an investor might realize. As Bill Cosby, certainly not an economist, so aptly stated in a routine, "Noah, how long can you tread water?"(asked the Lord). We had better ask ourselves that before the flood of foreclosures drown us all in unquenchable debt. The fire would be easier to handle.
full article at http://knowledge.wharton.upenn.edu/article.cfm?articleID=2104&post
Author's Copyright by Richard I. Isacoff, Esq., December, 2008
http://www.isacofflaw.com/
Subscribe to:
Posts (Atom)